Shares of Keurig Dr Pepper, the owner of soft drink brands, fell to their lowest level since 2020 after BNP Paribas downgraded the company. The bank attributed its assessment to the sharp negative market reaction to the purchase of coffee producer Jacobs for $18.4 billion. Analysts believe that the company's business is under pressure and expect a further decline in quotations after a fall of almost 20%.

Details

Quotes of Keurig Dr Pepper fell on September 22 by 4.3% - to the lowest level since Ma 2020 - after BNP Paribas downgraded the company's shares to "below market", which is equivalent to a recommendation to sell. BNP Paribas' $24 price target implies a decline of more than 7% relative to the Sept. 22 closing level.

Explaining their decision, analysts led by Kevin Grandy referred to the negative reaction of investors to the $18.4 billion deal to acquire the Dutch company JDE Peet's NV, which produces coffee and tea under the brands L'OR, Jacobs, Pickwick and others, writes Bloomberg. In addition, they see a risk to profits due to high coffee prices and weakening demand in the consumer goods sector.

"At this stage, the elasticity of demand against the backdrop of a sharp rise in coffee prices carries risks, and typical uncertainties remain before the deal closes (e.g., achieving synergies or, conversely, integration losses), which makes us remain cautious," the analysts wrote.

According to Grandy and his team, the offer to buy JDE Peet's turned out to be one of the most poorly-received consumer deals their firm has ever seen by investors, SeekingAlpha writes.

Since the announcement of JDE Peet's purchase of JDE Peet's in late August, Keurig's securities have fallen 19%. The shares have been showing losses for four weeks in a row - this is the longest series of declines since January, the agency notes.

What other analysts are saying

BNP Paribas was the only bank that gave Keurig shares a "worse than market" rating and was the first to recommend selling them since October 2024, Bloomberg writes. According to the agency, the company's shares now have 14 "buy" and seven "hold" recommendations.

Last week, Citigroup lowered its target price on Keurig Dr Pepper shares from $41 to $37, maintaining a "buy" recommendation. Its valuation implies a 42% upside to the stock.

Piper Sandler also lowered its target price on Keurig Dr Pepper shares to $35 from $40 and maintained a buy recommendation with an Outperform rating (Overweight). The bank's valuation implies a nearly 35% increase in the stock.

Context

Keurig Dr Pepper, after completing the acquisition of JDE Peet's, intends to split the business into two businesses - coffee and other beverages. The first business, with combined annual revenues of about $16 billion, will become the world's largest company focused exclusively on coffee. It will include brands with more than $1 billion in revenue, such as Keurig and Jacobs, as well as retailer Peet's Coffee. A second company with annual revenues of more than $11 billion will combine the soft drink Marks Dr Pepper, Canada Dry, 7UP and others.

The combined entity will be led by KDP's current management team led by CEO Tim Cofer and CFO Sudhanshu Priyadarshi.

This article was AI-translated and verified by a human editor

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