Keurig Dr Pepper stock received a vote of confidence from UBS analysts, who pinpoint an earnings inflection point on the horizon for a potential turnaround for the beverage giant.
Analysts upgraded the company's stock rating from Neutral to Buy, accompanied by a revised price target of $42 per share for the next twelve months, representing an impressive 26% upside.
“With shares trading below historical averages and at a deep discount to US Beverage peers, KDP is currently pricing in a decline in earnings power over the next twelve months. We view this as misplaced,” UBS analysts wrote.
The analysts express an increased conviction that an earnings inflection is underway, fueled by several key drivers. Firstly, they foresee sustained high single-digit (HSD) organic revenue growth, primarily propelled by an improved outlook for KDP's US Coffee segment. The report indicates a stabilizing household penetration and volume performance in this sector.
Coupled with potential price adjustments and expanding market gaps in comparison to other at-home coffee categories, this paints a promising picture for growth through 2024.
Furthermore, the US Coffee segment's anticipated expansion in the fourth quarter of 2023 is expected to contribute to improved segment margins, adding to the company's positive momentum.
“We believe visibility towards an earnings inflection in 2024 has substantially improved driven by sustained MSD (mid-single digit) organic revenue growth, improved segment margins, and lapping a MSD headwind from non-operating items,” UBS analysts wrote.
"With shares trading at a -32% discount versus US beverage peers and a shift in relative earnings momentum versus peers ahead, we believe the risk/reward skews to the upside.”
Shares of Keurig Dr Pepper were up about 2% by midday Wednesday in New York.
Contact Angela at angela@proactiveinvestors.com
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