Keurig Dr Pepper’s growth ‘gets another jerk’, Monster Beverage ‘monster’ results
Analyst Keurig Dr Pepper and Monster Beverage: Nik Modi maintains an outperformance rating on Keurig Dr Pepper shares with an unchanged price target of $ 37. Modi also maintains an outperformance rating on Monster Beverage shares with an unchanged price target of $ 104.
The monster drinks thesis: Monster Beverage posted “very strong results” which suggest momentum continued into 2021, Modi wrote in a note. The three main positive lessons from the company fourth quarter results report are:
1. US net sales growth of 16.3% exceeded expectations by 8% and improved 720 basis points sequentially to 11.8% on a two-year average.
2. International net sales improved 20.4% in the quarter and 18.5% on average over two years. Performance was “solid” as the company faced tough restrictive measures, especially across Europe.
3. January gross sales increased 17.2% year-on-year despite two fewer sales days.
Two negative points to remember are: 1) Net sales were impacted by $ 15.2 million due to product returns in Europe and a labeling issue in Japan, and 2) gross margin declined. contracted 75 basis points even when returns are excluded.
Management has said they will provide a product update soon, although their tone on a hard Seltzer launch “was a little less optimistic” than the previous comment, Modi wrote. While a hard launch of seltzer could take place in 2022, short-term products will likely focus on caffeinated and alcohol-free seltzer.
Keurig Dr Pepper’s thesis: Keurig Dr Pepper has seen continued momentum in the coffee category as well as gains in packaged drinks, Modi wrote in a note. The three main takeaways from the business fourth quarter results report are:
1. Coffee Systems posted a sales growth rate (in constant currency) of 8.9% in the quarter, while two-year average sales growth accelerated by 4 percentage points from September to 6. 5%.
2. Packaged beverages increased 7.9% from the consensus estimate of 5%. The momentum was driven by the volume and price mix and market share gains in cold drinks.
3. The target market for household management that could convert to a single serve coffee machine is $ 60 million.
Looking ahead to 2021, Keurig Dr Pepper expects to exceed its initial merger target of 2% to 3% annual revenue growth and generate synergies of $ 200 million, the analyst wrote. Management is also targeting sales growth of 3-4% and EPS growth of 13-15% in 2021.
“We believe that KDP has a very unique combination of strong underlying growth and meaningful balance sheet options,” Modi wrote.
KDP, MNST price action: Shares of Keurig Dr Pepper ended Friday at $ 30.52, down 1.10%, while shares of Monster Beverage were up 2.8% to $ 87.74.
See more Benzinga
© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.