Keurig Dr. Pepper Earnings Fall Flat
Shares of Keurig Dr. Pepper (NASDAQ: KDP) have been riding higher on a wave of revenue and earnings driven by post-pandemic spending and the completion of the company’s merger obligations. Those obligations have now been met and with results that have exceeded most expectations. Not only has revenue and earnings grown but the company's balance sheet is in the best condition since before the merger took place. The problem for the market now, aside from the turn of sentiment caused by Russia, is that the growth has been priced in. The stock is (was) trading at nearly 24X its earnings consensus which is well above the broad market average even for a company deep in the grips of growth. In our view, shares of KDP are due for a revaluation simply because of market conditions, the question is how deep will it go?
Regardless, we think the institutions will be scooping up shares if they present a discount to recent price action. Not only have the institutions been net buyers for the last 8 quarters but their activity picked up noticeably at the first of the year. Institutional activity in the first 7 weeks of 2022 is the highest its been in 9 quarters and net bullish in the amount of $0.97 billion or about 1.7% of the stock. The total institutional holdings are running near 50% at this time and we see that figure growing over the next few weeks and months.
The Analysts Aren’t Excited By Keurig Dr. Pepper Results
The 8 analysts covering Keurig Dr. Pepper rate the stock a weak Buy verging on Hold and they have been notably silent in the wake of the Q4 earnings report. Their consensus of $38.29 assumes the stock is fairly valued at the pre-release closing price and there is downside risk in the numbers. The consensus is up versus 1-year ago but only by 10% and it has been flat for the last 90-days. In our view, there is nothing to get really excited about in the release so we are not expecting much change and, if there is, it will probably include reduced price targets.
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Turning to the results, the company produced $3.39 billion in net revenue for a gain of 8.7% over last year and 15.7% for the full year 2021. On a two-year basis, full-year revenue is up 13.9% and beat the consensus estimates by 270 basis points. The strength was driven by gains in all segments that were supported by volume, mix, and pricing. The bad news is that margins did not improve as much as expected and left the adjusted EPS in line with consensus. Worse, from the valuation standpoint, the company only reiterated its guidance for revenue and earnings growth which can be considered weaker than expected and a headwind for share prices.
The Keurig Dr. Pepper Dividend Is Safe
The revaluation in Keurig Dr. Pepper has nothing to do with its dividend other than the possibility other stocks in the consumer staples group pay better yields at lower valuations. That said, the stock is yielding about 2.0% with shares moving lower in pre-market trading and we view it as a safe payout. The company’s leverage ratio has been reduced to 2.9X with both revenue and earnings growth in the forecast and dividends are only 44% of earnings. In our view, investors should expect another increase at the next declaration, if there isn’t it may become another headwind for share prices.
The Technical Outlook: Keurig Dr. Pepper At Risk Of Reversal
Shares of Keurig Dr. Pepper are down about 3.0% in early trading and at risk of effecting a reversal in price action. Shares are trading just above a key support line that could turn the recent consolidation into a Head & Shoulders pattern that could shave another 5.5% off of the share price or more if the institutions start selling too. Assuming support is able to hold at this level, we see this stock moving sideways until earnings and/or outlook catch up with the valuation.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Keurig Dr Pepper (KDP) | $32.27 | +0.7% | 2.85% | 19.56 | Moderate Buy | $38.36 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
