Investors in Keurig Dr Pepper Inc. (NYSE:KDP) had a good week, as its shares rose 2.1% to close at US$27.11 following the release of its first-quarter results. Keurig Dr Pepper beat revenue expectations by 2.5%, recording sales of US$2.6b. Statutory earnings per share (EPS) came in at US$0.88, some 6.9% short of analyst estimates. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Keurig Dr Pepper after the latest results.
Following last week's earnings report, Keurig Dr Pepper's 14 analysts are forecasting 2020 revenues to be US$11.4b, approximately in line with the last 12 months. Per-share earnings are expected to bounce 34% to US$1.13. In the lead-up to this report, the analysts had been modelling revenues of US$11.4b and earnings per share (EPS) of US$1.09 in 2020. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
There's been no major changes to the consensus price target of US$29.38, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Keurig Dr Pepper at US$33.00 per share, while the most bearish prices it at US$25.00. Still, with such a tight range of estimates, it suggeststhe analysts have a pretty good idea of what they think the company is worth.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that Keurig Dr Pepper's revenue growth is expected to slow, with forecast 1.4% increase next year well below the historical 21%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 4.8% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Keurig Dr Pepper.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Keurig Dr Pepper's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Keurig Dr Pepper's revenues are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Keurig Dr Pepper analysts - going out to 2023, and you can see them free on our platform here.
Even so, be aware that Keurig Dr Pepper is showing 4 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
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