Keurig Dr Pepper (KDP) Stock: Why Strategic Transformation & Undervaluation Make It a Buy - Dec 05, 2025

Keurig Dr Pepper (KDP) is undergoing a significant strategic transformation, including the acquisition of JDE Peet's and a planned separation into two independent companies. Despite initial market skepticism, recent strong financial performance and strategic financing for the acquisition suggest a compelling outlook, positioning KDP for substantial value creation.

Recommendation: Buy

What is the Investment Thesis for Keurig Dr Pepper (KDP)?

Our analysis suggests Keurig Dr Pepper (KDP) is currently undervalued, primarily due to market overestimation of risks associated with its strategic transformation. The company is actively acquiring JDE Peet's and planning a separation into a Global Coffee Co. and a North American Beverage Co. While initial market reaction included skepticism regarding increased leverage and execution risk, recent developments like robust Q3 2025 performance and securing $7 billion in financing from Apollo and KKR for the JDE Peet's acquisition address these concerns directly. This strategic financing provides a clear path for deleveraging and value creation from the upcoming split.

We believe the market has largely overlooked KDP's long-term potential, creating a valuation disconnect where the stock trades below its historical P/E multiples. Management's decisive actions to de-risk the JDE Peet's acquisition, combined with the proven strength of its core refreshment beverage portfolio and anticipated EPS accretion, are expected to drive a re-rating. The planned separation is a strategic move designed to create two agile, focused entities, better positioned for sustained growth and enhanced shareholder value in their respective markets.

What are the Key Bull Case Points for KDP?

Resilient Core Business & Innovation-Driven Growth

KDP's North American Refreshment Beverages segment consistently delivers strong performance. This growth is driven by market share gains, strategic acquisitions like GHOST (contributing 4.4 percentage points to Q3 volume/mix), and ongoing innovation in high-growth categories such as functional beverages and zero-sugar CSDs, providing a stable foundation for overall company expansion.

De-risked Acquisition & Improved Financial Flexibility

The securing of $7 billion in financing for the JDE Peet's acquisition, coupled with management's commitment to reducing net leverage by 0.5 turns per year, significantly de-risks the transaction. This move paves the way for projected 10% year-one EPS accretion and a stronger balance sheet.

Value Unlocked by Strategic Separation

The successful separation of KDP into a Global Coffee Co. and a North American Beverage Co. by H1 2026 is anticipated to unlock significant shareholder value. This process will create two focused entities, each capable of pursuing tailored growth strategies and realizing substantial operational synergies, with the Global Coffee Co. alone targeting $400 million.

What are the Key Risks and Bear Case Points for KDP?

Consumer Sentiment & Regulatory Scrutiny

Softening consumer sentiment, particularly among key demographics, and potential regulatory interventions could dampen demand. For example, USDA waivers limiting SNAP purchases of sugary drinks could impact 6% of U.S. sales across key beverage categories.

Persistent Margin Pressure & Cost Headwinds

Continued high inflation in input costs, particularly green coffee prices, and potential tariffs could further compress gross and operating margins. This is especially true in the U.S. Coffee segment, if not effectively offset by pricing power and productivity gains.

Execution Challenges & Integration Risks

The successful integration of JDE Peet's and the operational complexity of splitting KDP into two independent companies present significant execution risks. If these are mishandled, they could delay synergy realization and erode projected value creation.

How is Keurig Dr Pepper (KDP) Valued?

Keurig Dr Pepper (KDP) appears significantly undervalued based on its current NTM P/E of 12.90x. This multiple is substantially below its 3-year historical mean of 16.68x and approaches its 3-year historical minimum of 11.90x. This valuation disconnect suggests the market has not yet fully recognized the positive implications of the strong Q3 2025 earnings, the de-risking of the JDE Peet's acquisition, and the potential for future value creation stemming from the planned company separation.

What Should Investors Watch for Regarding KDP?

Investors should monitor several key indicators and potential catalysts to track KDP's strategic progress and potential stock performance.

• Strategic Transformation Milestones: Closely monitor quarterly updates concerning the JDE Peet's integration progress and the operational readiness for KDP's planned separation into two entities by year-end 2026. This includes formal announcements of leadership teams and capital structures.
• Deleveraging Pace: Track KDP's net leverage ratio in upcoming financial reports. Sustained progress towards the targeted 0.5 turns per year reduction and achieving the long-term target range of 3.5x-4.25x for the independent companies will be critical for financial stability.
• Coffee Segment Profitability: Observe operating income trends and volume growth in the U.S. Coffee segment. Pay particular attention to commentary on the impact of new innovations (e.g., Keurig Alta, Karoun pods) and the effective mitigation of commodity price volatility and tariffs.
• Definitive Spin-off Announcement: A formal announcement detailing the specific terms, timeline, and leadership for the two independent entities (Global Coffee Co. and North American Beverage Co.) could provide crucial clarity. This event is likely to trigger a significant re-rating of KDP's stock as the market gains confidence in the value unlock.
• Strong Future Earnings Reports: Continued strong performance in the Refreshment Beverage segment, combined with a quicker-than-expected recovery or margin expansion in the Coffee segment (especially after JDE Peet's integration) in Q4 2025 or Q1 2026 earnings, could demonstrate successful execution and further boost investor confidence