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Analysts said in a note to clients that an earnings inflection is brewing for the company.
“With shares trading below historical averages and at a deep discount to US Beverage peers, KDP is currently pricing in a decline in earnings power over the next twelve months. We view this as misplaced,” they explained.
“In fact, we have increased conviction that an earnings inflection is beginning to take shape, and see a path to +HSD bottom line growth driven by (1) sustained +MSD organic revenue growth driven by an improved outlook for US Coffee, (2) improved segment margins with US Coffee set to meaningfully expand exiting 4Q23, and (3) lapping a MSD headwind from non-operating items,” they added.
UBS believes that at a time when earnings growth is set to decelerate across many of KDP’s beverage peers, the shift in relative earnings momentum should narrow the valuation gap closer to historical averages.
“With earnings set to inflect and an attractive entry point, we believe the risk/reward now skews to the upside,” the analysts declared.
