After reaching long-term lows earlier this year, Keurig Dr Pepper (NASDAQ: KDP) had a strong quarter that has reinvigorated the bull case for the stock. This news has led to a nearly 5% increase in shares and has brought the stock to a critical level that could open the door to a sustained rally. The question now is whether current holders will continue to hold onto their shares or take advantage of the surge to cut their losses.
Key Points:
– Keurig Dr Pepper had a successful quarter, beating expectations and raising its guidance, which has lifted shares from their long-term low.
– Although the raised guidance may lead to a sustained rally, there are still potential hurdles that may affect the stock’s price action and prevent it from regaining critical support levels.
– Currently, the stock is down 17% from its recent highs and was down even more at its lowest point, making it an opportune time for some investors to exit the market.
– For Keurig Dr Pepper to continue trending higher, it will need to break through a significant point of resistance at $34. If the market fails to surpass this level and hold it, the stock could move lower.
Diversified Keurig Dr Pepper Beats And Raises:
In the second quarter, Keurig Dr Pepper posted solid growth, slightly surpassing the consensus estimate. However, this growth falls behind the double-digit gains seen by beverage giants like PepsiCo (NASDAQ: PEP) and The Coca-Cola Company (NYSE: KO).
The growth was primarily driven by an increase in US refreshment beverages, which saw an 11.8% rise, offset by a 5.7% decline in coffee sales. The decline in coffee sales can be attributed to shifts in consumer behavior, such as the return to work resulting in less coffee consumed at home.
The sales growth is mainly due to higher prices, as average pricing increased by 8.1%, while volume decreased by 2.1%, aligning with industry trends.
Although the adjusted margin contracted slightly compared to last year, this was outweighed by the top-line strength. The increase in costs, including marketing expenses, is expected to result in better sales in the future. The adjusted operating income rose by 4.4% compared to last year and accounts for 23% of revenue. GAAP earnings came in at $0.36, while adjusted earnings per share (EPS) stood at $0.42, both exceeding expectations by $0.02. Furthermore, adjusted EPS increased by 7.6% year-over-year.
The most positive aspect of the report is the raised guidance. Keurig Dr Pepper cautiously raised its revenue guidance by 100 basis points to 5% to 6%. The EPS outlook was reaffirmed, with expected growth of 6% to 7%. Given the company’s strong top-line performance, it is possible that the EPS estimate could be surpassed.
Keurig Dr Pepper Offers Value, But Analysts Aren’t Buying It:
Keurig Dr Pepper offers value compared to stocks like PEP and KO, trading at 18 times its earnings, while the other stocks trade closer to 25 and 26 times earnings, respectively. Additionally, these stocks offer similar dividend yields, with KDP yielding about 2.45%, PEP at 2.65%, and KO at 2.9%.
The price action of KDP stock is currently favorable, with the market up nearly 5% and showing strength in the candlestick chart. The stock has moved above its long-term moving average but still faces resistance.
Resistance at $34 could be substantial and may impede further upward movement. The analysts’ ratings may not provide much help, as they currently rate the stock as a Hold with a price target that has been declining throughout the year. While the consensus rating remains above critical resistance, it may not stay that way for long.
In conclusion, the recent performance of Keurig Dr Pepper has sparked optimism for the stock, but there are still uncertainties to consider. The company’s strong quarter and raised guidance indicate potential growth, but there are challenges ahead that may affect the stock’s price action. Before deciding whether to invest in Keurig Dr Pepper, it is advisable to consider the opinions of top-rated analysts and evaluate other potential opportunities in the market.
