By Peet Serfontein, Zimele Mbanjwa
Keurig Dr Pepper Inc. (KDP) is a prominent player in the beverage production and distribution industry in the United States (US). Formed through the merger of Keurig Green Mountain and Dr Pepper Snapple Group in 2018, the company has a diverse portfolio that includes more than 125 brands across various beverage categories. These include soft drinks, specialty coffee, tea, water, and juice. Some of its most famous brands include Dr Pepper, 7UP, Snapple, Green Mountain Coffee Roasters, and Canada Dry.
KDP continues to grow its market share and influence in the US beverage market, driven by innovation and strategic acquisitions. Revenue has grown at an annual compounded rate of 7.4% since 2019, while operating profit growth has maintained a faster pace of 7.7% per annum over the same period.
Technically, the stock price is forming a falling wedge pattern in a broader upward trend (refer to the first chart) - a bullish indicator. The pattern initially appears to be bearish (given the downward sloping trendlines) but is in fact indicative of fading downside momentum - which typically precedes a bullish reversal.
The stock is trading just below its 200-day simple moving average of ~$31.60 but we maintain a bullish stance.
The start of upside price momentum, according to the MACD indicator as well as the steep upwards trajectory of the on-balance volume indicator, is supportive of our bullish view.
Share Information
| Share Code | KDP |
|---|---|
| Industry | Beverages |
| Market Capital (USD) | 43.2 billion |
| One Year Total Return | -9.54% |
| Return Year-to-Date | -5.29% |
| Current Price (USD) | 31.13 |
| 52 Week High (USD) | 35.99 |
| 52 Week Low (USD) | 27.66 |
| Financial Year End | December |
| Although showing signs of recovery, the stock price movement over the last 12 months has been negative. Various technical indicators are pointing to a sustained push toward the upside. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 1.79 | 1.91 | 2.05 | 2.18 |
| Growth (%) | 6.70 | 7.38 | 6.48 | |
| Dividend Per Share (USD) | 0.83 | 0.88 | 0.93 | 0.97 |
| Growth (%) | 5.90 | 5.69 | 4.63 | |
| Forward PE (times) | 16.30 | 15.18 | 14.25 | |
| Forward Dividend Yield (%) | 2.82 | 2.98 | 3.12 | |
| The bottom line is expected to maintain consistent modest momentum over the medium term.td> | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | CVX - Buy (Continue to hold) | VVX - Buy (Continue to hold) | MS - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 147.89 | 45.19 | 89.14 |
| Current | 157.57 | 46.99 | 90.26 |
| Movement | 6.5% | 4.0% | 1.3% |
|
The price is holding above key support. The stock is just above its 200-day moving average. Fading upside momentum is a concern.
Our profit target is $167, with a trailing stop-loss of $150.90. Exit the position around 28 June 2024. |
The price is making higher lows and higher highs. The stock is testing its 200-day moving average, with our counter-trend strategy remaining intact. Upside momentum is supportive.
Our profit target is $52, with a trailing stop-loss of $44.10. Exit the position around 10 July 2024. |
The development of a falling wedge pattern in an uptrend is encouraging. The stock is above the 200-day simple moving average. Fading upside price momentum is a concern.
Our profit target is $101, with a trailing stop-loss of $85.50. Exit the position around 14 August 2024. |
| Share Name and position | PEP - Buy (Continue to hold) | KHC - Buy (Continue to hold) | BDX - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 171.44 | 37.16 | 239.07 |
| Current | 172.27 | 37.11 | 233.15 |
| Movement | 0.5% | -0.1% | -2.5% |
|
Price action above key support remains of interest. The stock is testing its 200-day moving average and we maintain our counter trend strategy. Upside momentum is supportive.
Our profit target is $190, with a trailing stop-loss of $167. Exit the trade by 26 June 2024. |
A price developing a base pattern remains attractive. The stock remains above its 200-day moving average. Emerging upside momentum is supportive.
Our profit target is $43, with a trailing stop-loss of $35.80. Exit the position around 14 August 2024. |
Note the pending time for exit on 24 April 2024.
The presence of a well-established price range remains of interest. The stock remains below its 200-day moving average, and we maintain our counter trend strategy. Fading upside momentum remains a concern. Our profit target is $265, with a stop-loss of $230. |
