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Investing.com - RBC Capital has maintained its Outperform rating and $42.00 price target on Keurig Dr Pepper (NASDAQ:KDP), a $42.4 billion beverage giant with impressive 54.9% gross profit margins, following the company’s proposed acquisition of JDE Peet’s. According to InvestingPro analysis, the stock appears undervalued at current levels.
The firm noted that KDP shares reacted negatively to the announcement of the acquisition and subsequent tax-free spin of the coffee business, with the stock declining 11.6% over the past week and now trading near its 52-week low of $30.12.
RBC Capital acknowledged that while it sees strategic merits in the transaction over the long term, the market reaction was understandable given concerns about increased leverage and the complex nature of the deal.
The analyst report indicated that the transaction complicates the prevailing investment thesis that many investors had embraced - viewing KDP as an undervalued stock with a gradually recovering coffee business and strong growth from its packaged beverage segment.
Despite the initial negative market response, RBC Capital ultimately believes the announced transaction will be value accretive for Keurig Dr Pepper, though it may take time for that value to be realized. InvestingPro subscribers can access 8 additional key insights and a comprehensive Pro Research Report that provides deeper analysis of KDP’s valuation and growth prospects.
In other recent news, Keurig Dr Pepper has announced a significant acquisition of JDE Peet’s in an all-cash deal valued at €15.7 billion. This transaction will result in Keurig Dr Pepper splitting into two independent, publicly traded companies. The deal includes a payment of €31.85 per share to JDE Peet’s shareholders, marking a 33% premium over the company’s 90-day volume-weighted average stock price. Following this announcement, Moody’s Ratings has placed Keurig Dr Pepper under review for a potential downgrade due to the company’s plan to acquire JDE Peet’s and split. Similarly, S&P Global has put the company on a negative credit outlook watch, citing concerns over increased debt levels, which are expected to rise to the mid-to-high 5x range post-acquisition. To finance part of this €18.4 billion acquisition, Keurig Dr Pepper is considering selling debt in the European bond market. Meanwhile, JPMorgan has upgraded JDE Peet’s stock rating from Underweight to Neutral, with a new price target of EUR31.85, reflecting the acquisition’s impact. These developments highlight the strategic moves and financial implications surrounding Keurig Dr Pepper’s acquisition of JDE Peet’s.
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