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RBC: Keurig Dr Pepper Growth 'Gets Another Jolt', 'Monster' Results From Monster Beverage

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Jayson Derrick
·3 min read
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RBC analysts maintained a bullish stance on Keurig Dr Pepper Inc (NASDAQ: KDP) and Monster Beverage Corp (NASDAQ: MNST) after the two beverage giants reported encouraging fourth quarter results.

The Keurig Dr Pepper and Monster Beverage Analyst: Nik Modi maintains an Outperform rating on Keurig Dr Pepper's stock with an unchanged $37 price target. Modi also maintains an Outperform rating on Monster Beverage's stock with an unchanged $104 price target.

The Monster Beverage Thesis: Monster Beverage posted "very strong results" that suggest momentum continued into 2021, Modi wrote in a note. The three main positive takeaways from the company's fourth quarter earnings report are:

1. US net sales growth of 16.3% beat expectations of 8% and improved 720 basis points sequentially to 11.8% on a two-year average basis.

2. International net sales improved by 20.4% in the quarter and 18.5% on a two-year average basis. The performance was "solid" as the company was up against difficult restrictive measures, especially across Europe.

3. January gross sales were higher by 17.2% year-over-year despite two fewer selling days.

Two negative takeaways that are worth noting are: 1) Net sales were impacted by $15.2 million due to product returns in Europe and a labelling issue in Japan, and 2) gross margin contracted by 75 basis points even when the returns are excluded.

Management said it will provide a product update soon although its tone on a hard seltzer launch "was a bit less optimistic" than prior commentary, Modi wrote. While a hard seltzer launch could come in 2022, near-term products will likely focus on caffeinated and non-alcoholic seltzers.

Related Link: Wells Fargo Taps Coca Cola, Monster In The Beverage Stock Race

The Keurig Dr Pepper Thesis: Keurig Dr Pepper saw continued momentum in the coffee category along with gains in packaged beverages, Modi wrote in a note. The three main takeaways from the company's fourth quarter earnings report are:

1. Coffee Systems shows a (constant currency) sales growth rate of 8.9% in the quarter while the two-year average sales growth accelerated 4 percentage points since September at 6.5%.

2. Packaged beverages grew 7.9% versus the consensus estimate of 5%. The momentum was driven by volume and price mix and cold beverage market share gains.

3. Management's target market of households that could convert to a single-serve coffee machine stands at 60 million.

Looking forward to 2021, Keurig Dr Pepper expects to exceed its original merger target of 2% to 3% annual revenue growth and deliver synergies of $200 million, the analyst wrote. Management is also targeting 3% to 4% sales growth and EPS growth of 13% to 15% in 2021.

"We believe KDP has a very unique combination of strong underlying growth and significant balance sheet optionality," Modi wrote.

KDP, MNST Price Action: Shares of Keurig Dr Pepper ended Friday at $30.52, down 1.10%, while shares of Monster Beverage were up 2.8% at $87.74.

Photo by Katherine Kromberg on Unsplash.

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