The shares of Keurig Dr Pepper (NYSE: KDP) currently trade at $33 per share, which is 16.5% above its pre-Covid levels. On the other hand, shares of Coca-Cola stock (NYSE: KO) trade at $53 per share currently, which is still 11% below its pre-Covid level. Does that make KO a better stock pick compared to KDP? Both companies belong to the food and beverage industry – providing packaged beverages, concentrates, etc. While Coca-Cola is a much bigger and more geographically diversified company, KDP’s lower valuation multiple (P/S) can provide quick gains to investors. KDP is better placed as most of its sales comes from brewing systems and bottled beverages, the demand for which is increasing as people are moving away from carbonated drinks. We compare a slew of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard analysis, The Coca-Cola Company vs Keurig Dr Pepper: Industry Peers; Which Stock Is A Better Bet?
- Keurig Dr Pepper’s revenue growth has been stronger than Coca-Cola’s over recent years, with Keurig Dr Pepper revenues expanding 40% in the last three years, compared to contraction of 3% in Coca-Cola’s revenues. Such a sharp rise in KDP’s revenue was mainly driven by the acquisition of Dr Pepper Snapple by Keurig Green Mountain which led to the formation of Keurig Dr Pepper. However, even if you look at the last twelve months, KDP’s revenues increased 8% while KO’s revenue dropped 11%. This was because KDP did not see any major impact of the pandemic on its sales, as at-home demand for K-Cups increased. On the other hand KO’s sales were affected by bottlenecks faced by its global supply network and refranchising of its bottling plants.
- KDP’s four operating segments – derives 44% of its revenue from bottled beverages (ending up in grocery and convenience stores) and 38% of sales from Keurig brewing systems and K-Cups, benefiting directly from the sudden surge in at-home consumption. Hardly 13% of KDP’s total revenues comes from concentrates (which are sold to affiliates that manufacture syrups used in fountain drinks), with its only international division – Latin America – making up only 5% of revenue.
- Coca-Cola reports its operating segments based on geographies, with over 60% revenue being contributed by non-US markets.
- Keurig Dr Pepper’s profit margins have been historically lower than Coca-Cola’s. Though both companies have seen an improvement in margins over recent years, KDP’s LTM operating margin is 13%, much lower than KO’s 33%. However, KDP’s margins have growth 4% in the last three years while KO’s went up 0.6%.
- The rise in KO’s margins was the result of refranchising of bottling plants, which is a high-revenue and low-margin business.
- With most of KO’s refranchising done, the margin upside is limited. In fact, KDP’s top line growth and acquisition synergies, along with at-home demand for its products, will lead to margin growth in the coming quarters. (related: See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.)
- Only with respect to financial leverage, KO appears to be in a better position. KO has a lower debt load with its debt at 18% of its equity. On the other hand, KDP’s debt is 27% of equity.
- Also, KO has managed its cash in a better way. Its cash as a percentage of assets stands at 10% compared to KDP’s 0.3%.
MORE FOR YOU
Net of it all
Though Coca-Cola appears to be have a better balance sheet, KDP is likely to exhibit better revenue and profit growth in the coming years. KDP continues to have an edge over rivals Coca-Cola and PepsiCo, as its coffee segment continues to see growth with people moving away from carbonated drinks and replacing the same with beverages like coffee. This growth is set to continue as working at home by millions of people is benefiting the company’s direct and licensed K-Cup coffee sales.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates