Big Upgrade Has Beverage Stock Bubbling

BMO thinks KDP's valuation is cheap compared to its sector peers

Managing Editor
Jun 17, 2019 at 9:43 AM
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The shares of Keurig Dr Pepper Inc (NYSE:KDP) are up 2.7% to trade at $29.40 this morning, after BMO upgraded the beverage maker to "outperform" from "market perform." While also raising its price target to $34 from $27, the analyst in coverage glowed about the company's valuation, calling it a discount to Keurig's non-alcohol sector peers.

Keurig Dr Pepper stock is currently a chip-shot from its May 15 all-time high of $29.76. KDP has traded within a tight range for most of 2019, with the $26 level serving as a floor and the overhead $30 area keeping a tight lid on breakouts. Year-over-year, the shares are up 47.4%.

For a stock that's performed pretty well, its surprising to see so many analysts remain in the bearish camp. Of the 15 brokerages covering KDP, 10 rate it a "hold" or sell. Plus, the consensus 12-month price target of $29.88 is a modest 4.4% premium to Friday's closing perch of $28.63. This means that more upgrades and/or price-target hikes could vault the equity higher in the short term. 

A short squeeze could also provide some tailwinds for the equity. Short interest increased by almost 7% in the two most recent reporting periods to 18.30 million shares, a record high. This accounts for a healthy 6.9% of KDP's total available float, and nearly eight days' worth of pent-up buying power, at the stock's average pace of trading.

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