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Investing.com -- Morgan Stanley upgraded Keurig Dr Pepper (NASDAQ:KDP) Inc to "overweight" from its previous rating, citing underappreciated growth potential in its beverage business despite short-term risks in its coffee segment.
The bank said Keurig Dr Pepper’s stock does not reflect an expected acceleration in sales growth, driven by strong performance in its U.S. refreshment drinks and international segments.
While coffee remains a near-term challenge, Morgan Stanley (NYSE:MS) believes the company’s broader strengths are being overlooked.
Keurig Dr Pepper’s valuation does not account for its improving growth trajectory compared to peers. Analyst at Morgan Stanley noted that the company’s U.S. beverage division has shown pricing power and market share gains, while international growth has been steady.
Morgan Stanley raised its price target to $40 from $38, implying nearly 20% upside, including dividends.
The bank called KDP a "safe haven" in a potential market downturn, given its defensive business mix and limited exposure to tariffs or currency fluctuations.
The upgrade comes as KDP’s stock has lagged in recent years, still trading below levels seen four years ago. Morgan Stanley argued that the company’s fundamentals are improving, with a favorable risk-reward balance.
While coffee profits could face pressure from rising costs, the bank said a potential price increase later this year could help offset those challenges.
“We see this as an opportune entry point into KDP as we think the market is not recognizing KDP’s growth prospects vs peers, with highly visible strength in its US Refreshment segment and continued solid International results, despite short term coffee profit risk,” Morgan Stanley analyst said.