Keurig Dr Pepper Inc (KDP, Financial) recently reported a day's gain of 4.23%, with an Earnings Per Share (EPS) of 0.93. Is this stock modestly undervalued as it seems? In this article, we delve into a comprehensive valuation analysis of Keurig Dr Pepper, providing a clear perspective on its current value. Stay with us as we unravel the financial intricacies of this company.
Company Overview
Established in 2018 following a merger between Keurig Green Mountain Coffee and Dr Pepper Snapple, Keurig Dr Pepper Inc (KDP, Financial) is a leading manufacturer and distributor of coffee systems and ready-to-drink beverages. The company's well-known brands include Keurig, Green Mountain, Dr Pepper, Snapple, and Canada Dry. It controls production and route to market through in-house manufacturing plants and distribution infrastructure. U.S. and Canada account for 95% of revenues, with the rest coming from Mexico.
The company's stock price is currently at $33.92, while the estimated fair value (GF Value) stands at $40.8. This comparison suggests that Keurig Dr Pepper's stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line indicates the ideal fair trading value of the stock.
According to our valuation method, Keurig Dr Pepper's stock appears to be modestly undervalued. The GF Value suggests that if the stock price significantly surpasses the GF Value Line, the stock might be overvalued, leading to poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock might be undervalued, promising higher future returns. Based on the current price of $33.92 per share, Keurig Dr Pepper's stock seems modestly undervalued.
Given its relative undervaluation, the long-term return of Keurig Dr Pepper's stock is likely to exceed its business growth.
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Financial Strength
Before investing, it's crucial to assess a company's financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. Keurig Dr Pepper has a cash-to-debt ratio of 0.02, lower than 94.34% of companies in the Beverages - Non-Alcoholic industry. Overall, Keurig Dr Pepper's financial strength is fair, with a score of 5 out of 10.
Profitability and Growth
Investing in profitable companies carries less risk, especially those with consistent profitability over the long term. Keurig Dr Pepper has been profitable for 10 out of the past 10 years. Over the past 12 months, the company had revenues of $14.3 billion and Earnings Per Share (EPS) of $0.93. Its operating margin of 18.84% is better than 90.74% of companies in the Beverages - Non-Alcoholic industry. Overall, Keurig Dr Pepper's profitability is fair.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth rate of Keurig Dr Pepper is 7.9%, which is better than 60.42% of companies in the Beverages - Non-Alcoholic industry. However, its 3-year average EBITDA growth rate is 1%, ranking lower than 63.83% of companies in the industry.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess profitability. When the ROIC exceeds the WACC, it implies the company creates value for shareholders. For the past 12 months, Keurig Dr Pepper's ROIC is 4.74, while its WACC is 6.75.
Conclusion
In conclusion, Keurig Dr Pepper's stock appears to be modestly undervalued. The company's financial condition and profitability are fair, though its growth ranks below 63.83% of companies in the Beverages - Non-Alcoholic industry. To learn more about Keurig Dr Pepper stock, you can check out its 30-Year Financials here.
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