Keurig Dr Pepper shares fell by -2.8% during the day's afternoon session, and are now trading at a price of $30.8. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Keurig Dr Pepper Inc. operates as a beverage company in the United States and internationally. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Keurig Dr Pepper has a trailing 12 month P/E ratio of 27.3 and a P/B ratio of 1.7.
Keurig Dr Pepper's PEG ratio is 2.52, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2018-08-07 | 2019-02-28 | 2020-02-27 | 2021-02-25 | 2022-02-24 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $6,690 | $7,442 | $11,120 | $11,618 | $12,683 | $14,057 |
| Gross Margins | 60.0% | 52.0% | 56.0% | 56.0% | 55.0% | 52.0% |
| Operating Margins | 21% | 17% | 21% | 22% | 23% | 20% |
| Net Margins | 16.0% | 8.0% | 11.0% | 11.0% | 17.0% | 10.0% |
| Net Income (MM) | $1,076 | $586 | $1,254 | $1,325 | $2,146 | $1,436 |
| Net Interest Expense (MM) | -$161 | -$452 | -$654 | -$604 | -$500 | -$693 |
| Depreciation & Amort. (MM) | -$198 | -$354 | -$484 | -$495 | -$544 | -$537 |
| Earnings Per Share | $5.89 | $0.53 | $0.88 | $0.93 | $1.5 | $1.01 |
| EPS Growth | n/a | -91.0% | 66.04% | 5.68% | 61.29% | -32.67% |
| Diluted Shares (MM) | 183 | 1,098 | 1,419 | 1,422 | 1,428 | 1,428 |
| Free Cash Flow (MM) | $1,243 | $1,790 | $2,592 | $2,770 | $3,207 | $3,048 |
| Capital Expenditures (MM) | -$205 | -$177 | -$118 | -$314 | -$333 | -$211 |
| Net Current Assets (MM) | -$7,025 | -$24,226 | -$23,988 | -$23,561 | -$22,569 | -$22,908 |
| Long Term Debt (MM) | $3,161 | $14,201 | $12,827 | $11,143 | $11,578 | $11,072 |
| Net Debt / EBITDA | 2.08 | 9.79 | 5.01 | 4.36 | 3.29 | 3.44 |
Keurig Dr Pepper has slimmer gross margins than its peers, declining EPS growth, and a highly leveraged balance sheet. On the other hand, the company has average operating margins with a stable trend working in its favor. Furthermore, Keurig Dr Pepper has weak revenue growth and a flat capital expenditure trend and irregular cash flows.
