Keurig Dr Pepper (KDP) shares tanked more than 10% on Aug. 25 after the soft drink company announced plans of buying JDE Peet’s (JDEPY) – a Dutch beverage firm – for about $18.4 billion.
Following the acquisition, the company will split into two separate, publicly traded entities:
- Global Coffee Co – combining JDE and KDP’s coffee assets
- Beverage Co – housing soft drink brands like Dr Pepper and Snapple
The sharp decline in KDP stock price today has pushed it back to levels last seen in early February.
Why Was KDP Stock Punished on Monday?
The Keurig Dr Pepper share price decline on Monday reflects skepticism about the 33% premium the company’s management has agreed to pay for JDE Peet’s.
Investors are concerned that KDP may be overpaying for the Amsterdam-headquartered firm. The all-cash transaction, they believe, will hurt its balance sheet, potentially resulting in near-term financial strain.
While the split is designed to sharpen strategic focus, KDP shares are meaningfully in red because the agreement introduce execution risk and uncertainty about leadership continuity and operational efficiency as well.
However, Keurig Dr Pepper stock pays a dividend yield of 2.95% that keeps it attractive as a long-term holding.
JDE Deal Could Prove Positive for KDP Shares
On the flip side, this high-profile merger will enable Keurig to divest its embattled coffee business, and “add focus to its strong cold beverages segment,” says Kenneth Shea.
According to the senior Bloomberg Intelligence analyst, the long-term vision behind JDE Peet’s acquisition is compelling, and the deal could unlock material upside in KDP stock price over time.
Jefferies analysts also maintained their “Buy” rating on Keurig Dr Pepper stock following the JDE news on Monday.
Investors should consider buying the KDP shares given the investment firm currently sees upside in them to $41, indicating potential for about a 30% rally from current levels.
How Wall Street Recommends Playing Keurig Dr Pepper
Investors could also take heart in the fact that Jefferies isn’t alone in keeping bullish on KDP stock.
The consensus rating on KDP shares also currently sits at “Moderate Buy” with the mean target of roughly $39 indicating potential upside of well over 25% from here.
