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Here's Why Keurig Dr Pepper (KDP) Possesses a Robust Upside Story

·5 min read

Keurig Dr Pepper Inc. KDP displays a remarkable upside story despite the looming effects of the coronavirus pandemic. Strength in the company’s Packaged Beverages and Coffee Systems businesses has been the cornerstone of its success, even amid the pandemic.

It has been experiencing strong volume/mix, particularly in the Packaged Beverages segment, due to the pandemic-led spike in at-home consumption. Moreover, increased coffee consumption due to the work-from-home trend aided the coffee business. This has been driving its performance, as evident from third-quarter 2020 results. Further, the company’s continued strong market share growth plays a significant role in its upside story.

Notably, the Zacks Rank #3 (Hold) company has a market capitalization of $44.7 billion. In the past three months, it has gained 10.3% compared with the industry’s growth of 7%. Moreover, it has comfortably outpaced the Consumer Staples and the Zacks S&P 500 composite’s growth of 5.7% and 8.9%, respectively.



Why Keurig Dr Pepper Should Retain the Momentum

The stay-at-home directives due to the pandemic have led to a change in consumers’ behavior regarding what they are buying and where they are buying. Keurig Dr Pepper believes that these shifts may be lasting and may continue post crisis. One such shift is the adoption of at-home consumption, which is likely to persist after the crisis.

Keurig Dr Pepper is likely to retain its strong performance in the Packaged Beverages segment, attributable to a strong performance at warehouses direct and the company-owned DSD (direct store delivery) businesses.  Also, the increased at-home consumption trends amid the COVID-19 pandemic as well as strong market share are likely to keep aiding the segment’s performance in the near term.

Notably, the company has been witnessing market share gains across several major categories — CSD's3, premium unflavored water, shelf-stable fruit drinks, shelf-stable vegetable juice and shelf-stable apple juice as well as apple sauce. The upside is driven by strength in Dr Pepper and Canada Dry CSDs, CORE hydration and evian premium water, Snapple teas and juice drinks, Clamato vegetable juice, and Motts apple juice and apple sauce. Additionally, management highlighted that it raised its carbonated and non-carbonated brand portfolios during the third quarter for effectively meeting the rising demand for beverage products.

Moreover, the company notes that there has been strong growth in at-home coffee consumption due to the work-from-home trend and the inability to visit coffee shops. Consequently, the Coffee Systems segment’s sales increased 3%, backed by an improved volume/mix of 6% in the third quarter. Growth in volume/mix stemmed from a 2.4% increase in pod volumes on a rise in at-home consumption, offset by a decline in away-from-home office. Meanwhile, brewer volumes advanced 34% on robust innovation in the past 24 months.

Further, in coffee, retail consumption for single-serve pods manufactured by Keurig Dr Pepper advanced 10.1% in channels tracked by IRI (Information Resources, Inc.). The dollar market share for Keurig Dr Pepper manufactured pods was a robust 82% in the third quarter, with improved share trends in its owned and licensed brand portfolio.

Additionally, the company witnessed a strong in-market performance in the third quarter. It witnessed dollar consumption growth, with market share gains across several major categories. Management highlighted that total liquid refreshment market share increased more than 90% across its retail base. Among these, growth witnessed in brands like CDS and Snapple as well as juice drinks and CORE premium water is noteworthy.

Moreover, the company has been seeing a slow recovery in restaurant traffic, which has been supporting the Beverage Concentrate segment. The company expects increased household penetration across both hot and cold beverage portfolios to continue.

The company’s market share growth is being supported by efficient marketing and product innovation strategies. Notably, Keurig Dr Pepper is investing in boosting distribution platforms and e-commerce operations.


While headwinds related to the pandemic are likely to continue in the near term, we believe that these solid fundamentals are likely to keep the company’s existing momentum in the days ahead.

Stocks to Consider

The Boston Beer Company, Inc. SAM delivered an earnings surprise of 23.1%, on average, in the trailing four quarters. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Molson Coors Beverage Company TAP, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 3.7%.

Monster Beverage Corporation MNST has an expected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2.

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