Here's why Morgan Stanley sees 'plenty of upside left' in this well-known drink company

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Here's why Morgan Stanley sees 'plenty of upside left' in this well-known drink company
Credit: © Reuters.

While the stock may be down almost 5% in 2023, Morgan Stanley analysts reiterated a buy rating and raised the price target for a well-known drink company.

In fact, they told investors there is "plenty of upside left" in Nasdaq-listed Keurig Dr Pepper Inc (NASDAQ: KDP ), with the stock hitting an inflection point. The analysts lifted the firm's price target for the stock to $39 from $36 per share.

They told investors in their note that the company posted "solid Q2 upside," with underlying FY guidance moving up and improved visibility.

KDP posted Q2 earnings of $0.42 per share on Thursday, $0.02 better than the analyst estimate of $0.40. Meanwhile, revenue for the quarter came in at $3.79 billion versus the consensus estimate of $3.69 billion. The company also raised its full-year net sales outlook.

"Solid and above consensus Q2 results, raised underlying FY EPS guidance, and a confident conference call tone, all supported the key tenets of our recent upgrade to OW a few weeks ago," the analysts wrote.

"These points include that: 1) US refreshment/ international upside vs consensus was highly visible and materially better than consensus and would offset below consensus coffee risk, 2) a pending large H2 inflection in coffee for numerous reasons would act as a catalyst, and 3) valuation was very compelling, at a large discount to historical relative averages," the analysts added.

The analysts believe all these points still hold, and they now have higher visibility post the Q2 release.

They also noted that "recent partner (MDLZ, etc.) share sales have weighed on stock performance," adding that a perceived lack of visibility limited new investors.

"However, from here, MDLZ has now fully exited its stake, and we see Q2 as providing enough visibility that it should help draw in new investors," they concluded.

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