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Analyst Upgrades Keurig Dr Pepper to Outperform

By Jennifer Saibil – Updated Jun 1, 2020 at 11:34AM

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After a great first quarter, the shares are looking like a strong buy.

Keurig Dr Pepper (KDP -0.69%) is off to a strong start after reporting robust sales growth in its first quarter and the likelihood that it will continue as the economy reopens. Robert Ottenstein at Evercore ISI upgraded the stock from in line to outperform based on this view and other considerations.

Keeping up the momentum

The beverage company released its first-quarter earnings report for the period ending March 31 on April 27 and it was a good one. While many retail companies have tanked altogether and other food companies showed losses, Keurig Dr Pepper, which has a highly diversified product line, reported a 4.4% increase in net sales to $2.61 billion. Adjusted earnings rose 16% to $0.29. 

Kid drinking a soft drink.

Image source: Getty Images.

Systems that work in any environment

The company has what it calls its "seven routes to market" that keep it well hedged for when any of them go flat.

Packaged beverages performed well in the quarter while concentrates, which go to food establishments for fountain drinks, and office coffee systems saw an unfavorable impact from the pandemic. 

The company saw increases in most of its key categories, including:

  • Carbonated soft drinks in the Dr Pepper and Canada Dry beverage brands
  • Premium unflavored water in the CORE hydration and Evian brands
  • Shelf-stable fruit drinks in the Snapple brand
  • Shelf-stable apple juice and apple sauce in the Mott's brand

Maintaining guidance

Also unlike many companies, Keurig Dr. Pepper is keeping its 2020 outlook, which gives investors a good reason to consider its prospects.

Although the office coffee system category was slow in the first quarter, Evercore also sees a long-term advantage in the work-from-home environment for personal Keurig systems.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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