UBS thinks investors should buy shares of Keurig Dr Pepper at these levels. The firm upgraded the soda stock to buy from neutral in a Tuesday note and raised its price target to $42 per share from $37. UBS’ new forecast now implies 25.4% upside over the next 12 months. Analyst Peter Grom said Keurig Dr Pepper is trading at a valuation below its historical averages and relative to peers, presenting a buying opportunity to investors. According to FactSet, the stock trades at a forward price-to-earnings ratio of 18.76. UBS also noted that its enterprise value-to-EBITDA multiple is 15% below U.S. beverage competitors. “At a time when earnings growth is set to decelerate across many Beverage peers, this shift in relative earnings momentum should narrow the valuation gap closer to historical averages,” Grom said. “With earnings set to inflect and an attractive entry point, we believe the risk/reward now skews to the upside.” The analyst added Keurig Dr Pepper’s coffee segment could potentially underpin revenue expansion, while also benefiting from stronger brand partnerships overall. “We expect KDP to exit ’23 with an improved algorithm for US Coffee that should drive continued +MSD [mid-single digit] growth looking out to ’24,” he said. “Our detailed bottom-up analysis of the segment suggests that household penetration/volume performance has stabilized and when layering in the potential for continued pricing as gaps vs. other at-home coffee categories has widened, we see a path to +MSD growth for the segment.” Shares are trading roughly 6% lower from the start of the year. KDP YTD mountain Keurig Dr Pepper stock has dipped more than 6% from the start of 2023. — CNBC’s Michael Bloom contributed to this report.
This story originally appeared on CNBC
