Is Keurig Dr Pepper Stock A Better Beverage Pick Over Coca-Cola?

Core Viewpoint - Keurig Dr Pepper (KDP) is considered a better investment option compared to Coca-Cola (KO) despite KO's superior revenue growth and profitability, primarily due to KDP's attractive valuation and potential for upside in the next three years [2][9]. Group 1: Stock Performance - KDP stock has increased by 15% from $30 in January 2021 to approximately $35, while KO stock has risen by 20% from $55 to $65 during the same period [3]. - The broader S&P 500 index saw a gain of 45% over the last three years, indicating that both KDP and KO underperformed relative to the index in 2021 and 2023 [3][4]. Group 2: Revenue Growth - KDP's sales grew at an average annual rate of 8.5%, increasing from $11.6 billion in 2020 to $14.8 billion in 2023, while KO's sales grew at an average rate of 11.6%, from $33 billion to $45.8 billion during the same period [5][6]. - KDP's growth was driven by at-home demand for K-Cups during the pandemic, but recent trends show a decline in U.S. coffee segment sales due to changing consumer preferences [5]. Group 3: Profitability and Financial Position - KDP's operating margin was 21.6% in 2023, slightly down from 21.9% in 2020, while KO's operating margin decreased from 29.5% to 28.6% over the same period [7]. - KO has a better financial risk profile with 16% debt as a percentage of equity compared to KDP's 37%, and KO also has a higher cash position at 17% of assets versus less than 1% for KDP [8]. Group 4: Valuation and Future Outlook - KDP's estimated valuation is $38 per share, indicating over 15% upside from its current level of $33, based on a 20x P/E multiple and expected earnings of $1.93 per share for 2024 [9]. - In contrast, KO's estimated valuation is $65 per share, reflecting only a 3% upside, based on a 23x P/E multiple and expected earnings of $2.85 per share for 2024 [9].