Beverage companies have been seeing higher at-home consumption of their products since the pandemic as consumers are largely restricted to their homes. However, the decline in consumption in on-premise channels like restaurants has been a major blow.
Using the TipRanks’ Stock Comparison tool, we will place Monster Beverage and Keurig Dr Pepper alongside each other to see which beverage stock offers a more compelling investment opportunity.
Keurig Dr Pepper (KDP)
Keurig Dr Pepper, which was formed in 2018 with the merger of Dr Pepper Snapple Group and coffee maker Keurig Green Mountain, has impressed investors by showing unexpected resilience amid the pandemic even when beverage giants Coca-Cola and PepsiCo reported revenue decline.
The company’s higher exposure to packaged beverages and coffee business compared to its concentrates business worked in its favor amid the current crisis.
KDP has a broad portfolio of hot and cold beverages that are delivered through a diversified route-to-market network. KDP’s beverage portfolio includes over 125 owned, licensed, and partner brands, including key brands like Keurig, Dr Pepper, Bai, Canada Dry, Snapple, Mott's, Green Mountain and The Original Donut Shop.
Keurig Dr Pepper’s second-quarter sales grew 1.8% Y/Y to $2.86 billion as higher sales in the company’s Coffee Systems and Packaged Beverages segments were partially offset by declines in the Beverage Concentrates and Latin America Beverages segments.
Notably, robust growth in brewers and K-Cup coffee pods for at-home coffee consumption boosted the Coffee Systems’ sales. However, the company faced a significant volume decline in away-from-home office and hospitality businesses. The Coffee Systems segment also gained from accelerated sales in the online channel.
Likewise, the Packaged Beverages business benefited from higher at-home consumption which helped in addressing the weakness in the convenience and gas channels as consumer mobility was limited.
Overall, higher sales, lower marketing and other discretionary spending, and productivity and merger synergies helped the company in delivering a 10% rise in the second-quarter adjusted EPS to $0.33.
While Coca-Cola and PepsiCo pulled back their full-year guidance amid the uncertain environment, Keurig Dr Pepper reaffirmed its 2020 net sales growth forecast in the range of 3% to 4% (excluding the impact of currency) and adjusted EPS growth between 13% to 15%.
The company is focused on innovating new products with recent launches like Dr Pepper & Cream Soda, Canada Dry Bold, K-Duo Brewers line and K-Slim Brewer receiving favorable response.
On August 26, Morgan Stanley analyst Dara Mohsenian upgraded KDP stock to Buy from Hold and increased the price target to $34 from $32.
The analyst believes that the company’s “potential longer-term benefits in coffee with greater household penetration, and its strong near-term momentum with high topline and EPS visibility, are not priced into large valuation discounts to peer groups (KO/PEP, as well as US-centric/defensive names)." (See KDP stock analysis on TipRanks)
The Street has a Strong Buy consensus for Keurig Dr Pepper based on 9 Buys, 3 Holds and no Sell ratings. Year-to-date, KDP stock has risen 3.8% and the average analyst price target of $34.33 suggests further upside potential of 14.2% over the next 12 months.
Monster Beverage (MNST)
Leading energy drinks maker Monster Beverage delivered better-than-anticipated results in the second quarter even as COVID-19 shadowed its sales in convenience and gas channels. The company’s second-quarter net sales fell 0.9% Y/Y to $1.09 billion as bottlers and distributors reduced their inventory. Despite the top-line pressure, adjusted EPS increased 11.3% to $0.59 as the company cut back on its operating expenses.
Monster Beverage is gaining strength in many markets against key rival Red Bull. The competition in the energy drinks market is heating up as Coca-Cola (KO) launched its own energy drink in the US earlier this year and PepsiCo acquired Rockstar Energy and also became the exclusive distributor of Bang Energy drinks in the US.
However, Monster Beverage’s strategic partnership with Coca-Cola is expected to strengthen the company’s international presence as Coca-Cola is its preferred global distribution partner. The company is optimistic about its prospects in the second half of the year as certain countries are gradually re-opening and easing restrictions.
Plus Monster Beverage is also expanding its portfolio through innovations. The second-quarter roll-outs included Monster Energy Dragon Tea in China and affordable energy products Fury Gold Strike in Honduras and Predator Gold Strike in Nigeria. There is also speculation that Monster Beverage is geared up to enter the lucrative hard seltzer space this year.
Following the second-quarter results, Stifel analyst Mark Astrachan upped his price target for MNST stock to $89 from $84 and maintained a Buy rating based on solid US sales, international sales acceleration, hard seltzer innovation in the second half, management’s margin commentary, and the discounted valuation.
Astrachan raised his earnings estimates and stated, “We anticipate expense leverage to continue through 2H20, which along with higher anticipated sales growth results in 5% and 3% favorable revisions to our 2020 and 2021 EPS estimates.” (See MNST stock analysis on TipRanks)
Monster Beverage stock has advanced by an impressive 33% so far in 2020. But, the average analyst price target of $85.09 does not reflect much upside over the next 12-months. Overall, 8 Buys, 2 Holds and 1 Sell add up to a Moderate Buy consensus for the stock.
So is Keurig Dr Pepper a better choice?
Keurig Dr Pepper has a more diversified business compared to Monster Beverage, which appears to be an advantage amid the current crisis. Unlike Monster, Keurig Dr Pepper rewards its shareholders through dividends and has a dividend yield of 2%. The Street’s bullish stance and strong upside potential make Keurig Dr Pepper stock a more compelling buy compared to Monster Beverage.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment