Keurig Dr. Pepper Preserves Earnings In the Face Of Headwinds
Keurig Dr. Pepper (NASDAQ: KDP) shares are lower in the wake of the Q1 report but we don’t think they are going to fall much further. The institutions have been scooping up this stock over the past year and put a firm floor in the price action. The institutions purchased an amount worth about 6.6% of the market cap over the last year and fully 220 basis points of that buying was done during Q1 of 2022. The buying is coincident with what appears to be a strong level of support and one that we see propelling the stock higher. The institutions own about 49.5% of the stock now and that figure should get larger as the year progresses.
The analysts have yet to come out with commentary post-earnings release but there is one coming down the pipe to be sure. The question is what will it include and we think, based on the Q1 results, that it will be bullish. As it is, the 8 analysts with current ratings have the stock pegged at a firm Hold verging on Buy with a price target that assumes the stock is fairly valued. The upshot is the consensus is trending higher despite having stalled at $38.43 over the past month and the high price target would be a new all-time high. The caveat there is the high price target was set in June 2021.
Keurig Dr. Pepper Works To Preserve Earnings
Keurig Dr. Pepper had a good quarter if one impacted by several issues including inflation and coffee supply. The good news is that efforts to raise prices to combat the issues have already begun to take effect and will continue to take effect over the next quarter at least. The pricing increases helped to boost Q1 revenue to $3.08 billion or up 6.2% from last year and 230 basis points better than the Insidertrades.com consensus. The growth was driven by double-digit gains in 3 of the 4 operating categories with only the coffee segment experiencing weakness. The company reports a 6.3% increase in price realization as well, offset by a slight decline in volume.
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“We made significant progress during the quarter on increasing coffee production and rebuilding inventories, and we implemented additional pricing actions across most categories. Consequently, we now expect to deliver net sales growth in the high-single-digit range and continue to expect to deliver Adjusted EPS growth in the mid-single-digit range for the year."
In regards to earnings, the company made significant progress and was able to widen the GAAP margins. On a GAAP basis, operating income increased by 51% to drive a 78% increase in earnings. Adjusted margins are a little different, declining slightly from last year to leave the $0.33 in EPS as expected and flat from last year. The takeaway is the pricing actions were made quickly enough to preserve the earnings guidance and the outlook for earnings is favorable. The company raised its guidance for revenue due to higher price realization and is maintaining the outlook for earnings. The outlook for full-year earnings is for mid-single-digit growth with growth accelerating from flat in Q1 to the high-single-digits in Q4.
The Technical Outlook: Keurig Dr. Pepper Confirms Support
Price action in KDP fell more than 5% in the wake of the earnings report but buyers quickly stepped in. The market has since risen back to the previous day’s close and is confirming support at a key level. This level is consistent with robust institutional activity in Q1 and should be the floor in price action. Assuming that this is correct, we see the stock moving sideways within its current range of $37 to $39. If the market breaks out to a new high we see it moving up into the $40 to $42.50 range.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Keurig Dr Pepper (KDP)||$36.07||+1.9%||2.08%||21.47||Hold||$39.20|