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Reasons to Hold Keurig Dr Pepper (KDP) in Your Portfolio Now

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Keurig Dr Pepper Inc. (KDP - Free Report) has been benefiting from solid market share gains and growth across all segments, including increased opportunities in the Packaged Beverages and Coffee Systems businesses. A solid first-quarter 2021 performance and gains from productivity and merger synergies also buoy optimism on the stock. However, the impacts of coronavirus on the fountain foodservice business and currency headwinds are major downsides.

Notably, the Zacks Rank #3 (Hold) stock has gained 8.4% in the year-to-date period compared with the industry’s growth of 0.4%. Also, the company’s shares have comfortably outpaced the Consumer Staples sector’s rally of 7.4%.

The renowned beverage and coffee company in the United States and Canada generates annual revenues of more than $11 billion. It has a market capitalization of $49.2 billion. The company is on track with prudent cost management actions. Moreover, investments in marketing, product innovation and technology upgrades are likely to yield results.

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Keurig Dr Pepper surpassed the Zacks Consensus Estimate in the trailing four quarters by 3.1%, on average. In the past 30 days, the company’s estimates for 2021 and 2022 earnings per share have been unchanged. Moreover, the Zacks Consensus Estimate for its current financial-year sales and earnings suggests growth of 6% and 14.3%, respectively, from the year-ago period.

Now let us discuss at length what makes Keurig Dr Pepper a stock to watch.

Keurig Dr Pepper has been witnessing strong in-market performance, which continued in the first quarter. The company witnessed dollar consumption growth, with market share gains across several major categories, including CSDs, teas, juice drinks, apple juice, vegetable juice, coconut water, mixers and premium unflavored water. Moreover, the company has been seeing slow recovery in restaurant traffic, which is supporting the Beverage Concentrate segment.

The company expects increased household penetration across both hot and cold beverages portfolio to continue in the future. Moreover, the company’s market share growth is being supported by efficient marketing and product innovation strategies. Also, its investments toward boosting distribution platforms and e-commerce operations bode well.

The stay-at-home directives amid the coronavirus pandemic have particularly benefited the company’s Coffee Systems segment, driven by growth in at-home coffee consumption. The company expects this trend to stay in the post-pandemic period. Also, the Packaged Beverages segment has seen strong growth trends of late due to the rise in demand for packaged drinks for consumption at home, which also led to strong market share gains. Its brands like Dr Pepper, A&W, Canada Dry, 7UP, Sunkist, Snapple and Clamato have been performing well. Moreover, it has been witnessing market share gains across several major categories — CSDs, teas, juice drinks, apple juice, vegetable juice, coconut water, mixers and premium unflavored water.

Driven by an impressive first quarter, Keurig Dr Pepper raised its sales view for 2021. The company now expects net sales growth of 4-6% compared with the prior guidance of 3-4%. The top-line view is based on the assumption that the company will be able to offset growing inflationary pressure. Additionally, it reaffirmed the bottom-line view. Management continues to expect adjusted earnings growth of 13-15%, backed by improved sales. Adjusted interest expenses are estimated at $505-$515 million, with adjusted effective tax rate of 23.5-24%. Moreover, the company expects a management leverage ratio at or below 3.0X at the end of 2021.

Hurdles on the Path

The greatest impacts of the pandemic have been felt across Keurig Dr Pepper’s fountain foodservice business due to lower consumption of coffee at office and in the hospitality channels. Also, unfavorable currency movements have been particularly detrimental to its Latin America Beverages segment. The persistence of these trends is likely to prove damaging for the company’s otherwise improving trends.

Better-Ranked Stocks to Watch

The Boston Beer Company, Inc. (SAM - Free Report) has delivered a trailing four-quarter earnings surprise of 51.5%, on average. It currently sports a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Archer Daniels Midland Company (ADM - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 6.2%.

Chewy Inc. (CHWY - Free Report) has a long-term earnings growth rate of 20%. It currently has a Zacks Rank #2.

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