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Morgan Stanley says Keurig Dr Pepper is “ready to regain its pop after losing its caffeine high.” The firm said in a Thursday note that “pronounced stock underperformance” has created a buying opportunity for investors. Analyst Dara Mohsenian upgraded shares to overweight from equal weight. Its price target of $36 implies shares rallying 13.4% from where they closed on Wednesday. The stock gained almost 1.9% Thursday during premarket trading. “Said more simply, we don’t pretend to have complete visibility in coffee, but with some of the weakness tied more to factors that don’t drive long-term value, and a clear path of continued upside in US refreshment beverages, KDP’s valuation looks compelling here after outsized stock underperformance,” Mohsenian said. He added that some of the weakness in the coffee segment is simply a “drop-off from post-Covid benefits.” Strength in the U.S. Refreshment Beverages segment will help offset the potential downsides from the coffee business, said Mohensenian. “We believe KDP US refreshment upside is likely to continue going forward, with both a robust and visible industry pricing backdrop, as well as strong and consistent KDP market share gains,” said the analyst. “Beyond a strong industry pricing backdrop, we also see KDP’s share position as consistently solid. KDP has now gained [year-over-year] US tracked channel beverage share in 14 out of the last 18 quarters,” he continued. Keurig Dr Pepper shares have lost 11% in 2023. “We see KDP’s stock price as discounting too much risk,” said Mohsenian. —CNBC’s Michael Bloom contributed to this report.
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