Keurig Dr Pepper Inc. (NASDAQ:KDP) was cut to Equal-Weight from Overweight at Morgan Stanley on Wednesday, with analysts maintaining a $37 price target on the stock, saying part one of its two-part thesis is playing out.
The part currently occurring is the company's EPS visibility. Meanwhile, the second part of its previous upgrade thesis, a topline rebound, is more
uncertain.
Morgan Stanley believes the market now views KDP's EPS visibility as solid, or at least much better than pronounced fears over an FY23 EPS cutback in early July.
Meanwhile, the analysts explained that the second part of the call has not come to fruition due to "an expected topline rebound in coffee not playing out as much as expected, with discounting from pod competitors limiting KDP share and driving lower KDP owned-pod pricing, and the segment not recovering as much as expected when yoy pressure from mobility recovery dissipated," the analysts said.
"Importantly, a higher valuation also now reflects a higher bar after significant stock outperformance in H2, moving us to the sidelines and an EW rating," the analysts noted.