<\/p>\n
Keurig Dr Pepper built one company around two very different businesses: a North American beverage operation led by Dr Pepper and a coffee franchise built around Keurig.<\/p>\n
But it is now preparing to separate them, again, since its merger in 2018.<\/p>\n
The company plans to split into two publicly traded businesses in early 2027.<\/p>\n
The separation will create:<\/p>\n
North American beverage company that will include Dr Pepper and KDP’s other cold-drink brands<\/p>\n
Global coffee company combining Keurig with JDE Peet’s<\/p>\n
The separation follows KDP’s acquisition of JDE Peet’s and is the first step in a broader restructuring, leaving investors with two companies with increasingly different growth, margin, and debt profiles. <\/p>\n
Bank of America says the split remains on track for early 2027.<\/p>\n
And this difference is why BofA thinks the breakup could unlock value.<\/p>\n
In a note shared with TheStreet, BofA reiterated its Buy rating on Keurig Dr Pepper and its $38 price objective, around 21% upside from the $31.39 share price cited in the report.<\/p>\n
But the bank’s valuation breakdown is more revealing than the price target itself. BofA estimates that the future beverage company alone could be worth roughly $31 per current KDP share, while the global coffee business could be worth about $7 per share.<\/p>\n
Simply put, BofA believes the Dr Pepper-led side of the company could eventually be valued at nearly as much as all of Keurig Dr Pepper is worth today.<\/p>\n
The reason is that KDP’s beverage business looks considerably stronger than it did when Keurig Green Mountain and Dr Pepper Snapple merged in 2018.<\/p>\n
Dr Pepper has become KDP’s biggest growth engine<\/p>\n
BofA estimates that the stand-alone beverage company will generate about $13 billion in sales in fiscal 2026.<\/p>\n
Between fiscal 2008 and fiscal 2017, the legacy Dr Pepper Snapple operation averaged less than 2% annual organic sales growth.<\/p>\n
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However, since fiscal 2020, beverage organic sales have exceeded 5% every year and are on pace to do so for a seventh consecutive year in fiscal 2026.<\/p>\n
A major reason for this is Dr Pepper.<\/p>\n
The brand surpassed Pepsi-Cola in 2023 to become the No. 2 U.S. carbonated soft-drink brand by volume and has continued gaining share since then, according to Beverage Digest data cited by BofA.<\/p>\n
Dr Pepper now accounts for roughly 40% of KDP’s U.S. beverage sales, according to NielsenIQ data in the report. <\/p>\n
Canada Dry represents another 11%, while A&W and Ghost each account for about 6% and 7UP for 5%.<\/p>\n
Soft drinks still account for roughly 76% of KDP’s beverage sales, but the company has also been expanding into faster-growing categories.<\/p>\n
Its distribution network carries partner brands including C4, Bloom, Electrolit, Vita Coco, Polar Beverages, La Colombe, and Black Rifle Coffee.<\/p>\n
Those agreements give KDP exposure to energy drinks, hydration, functional beverages, and ready-to-drink coffee without requiring it to buy every brand outright.<\/p>\n
BofA argues that this allows KDP to put more volume through its distribution system while committing less capital than it would through large acquisitions.<\/p>\n
Partner brands have also consistently grown faster than KDP’s owned portfolio.<\/p>\n
BofA said partner-brand retail sales increased 36.9% year over year in the second quarter of 2026, compared with 2.5% growth for owned brands.<\/p>\n
KDP has simultaneously been bringing more distribution routes in-house, a move BofA believes can improve store-level execution and margins.<\/p>\n
Keurig Dr Pepper’s stock is up 13% year to date.<\/p>\n
Kevin Carter \/ Getty Images<\/p>\n
BofA sees a valuation gap<\/p>\n
Keurig Dr Pepper currently trades at roughly 13 times BofA’s estimated 2027 earnings, compared with about 24 times for Coca-Cola and 15 times for PepsiCo.<\/p>\n
BofA argues that Coca-Cola deserves a premium because of its international reach, stronger organic growth, and higher margins.<\/p>\n
But it sees KDP’s discount to Pepsi as more difficult to justify. KDP’s combined business generates an EBITDA margin of roughly 24%, compared with about 20% for PepsiCo, according to the bank.<\/p>\n
The difference becomes more pronounced when coffee is removed. BofA estimates the stand-alone beverage company could generate about $13.67 billion in 2027 sales and approximately $4 billion in adjusted EBITDA, giving it an EBITDA margin of roughly 29%.<\/p>\n
The bank believes a mid-teens EBITDA multiple would be appropriate, placing the business between Pepsi and Coca-Cola in terms of valuation.<\/p>\n
At 15 times EBITDA, BofA estimates Beverage Co. would be worth approximately $31 per current KDP share. This means the majority of BofA’s $38 valuation for Keurig Dr Pepper comes from the beverage side.<\/p>\n
Coffee remains the biggest question<\/p>\n
The future Global Coffee Co. will combine KDP’s coffee operation with JDE Peet’s, creating a company BofA estimates could generate roughly $16 billion in 2027 sales and $3.1 billion in adjusted EBITDA.<\/p>\n
But BofA assigns that business a much lower valuation.<\/p>\n
Coffee remains a relatively commoditized category compared to that of branded beverages due to:<\/p>\n
Volatile green coffee costs<\/p>\n
Periodic margin pressure<\/p>\n
Less predictable sales growth<\/p>\n
BofA estimates the coffee company could command roughly six to eight times EBITDA. At the midpoint of that range, it would be worth about $7 per current KDP share.<\/p>\n
The bank also identified three issues that could weigh on the business before the split: <\/p>\n
Need for a permanent CEO<\/p>\n
Uncertainty around its post-separation leverage<\/p>\n
Volatility in coffee commodity prices.<\/p>\n
Those pressures come as global coffee prices remain elevated and JDE Peet’s margins trail those of several peers.<\/p>\n
Keurig Dr Pepper debt has to come down<\/p>\n
KDP also has to reduce a sizable debt burden before the two companies can stand independently.<\/p>\n
The JDE Peet’s transaction includes:<\/p>\n
$6 billion of unsecured bonds<\/p>\n
$3.9 billion of term loans<\/p>\n
$4.5 billion of convertible preferred equity linked to the future beverage company<\/p>\n
KDP also assumed about $5.3 billion of JDE Peet’s existing debt.<\/p>\n
Management reported net leverage of 4.4 times following the transaction, while BofA calculated adjusted net leverage of about 5.3 times.<\/p>\n
KDP has been working to bring those levels down through free cash flow and asset sales, including the planned monetization of its Chobani stake.<\/p>\n
Maintaining investment-grade ratings is particularly important because the separation cannot be completed if either KDP or the future coffee company falls below investment grade at both Moody’s and S&P under terms tied to the transaction.<\/p>\n
That makes deleveraging one of the biggest remaining hurdles before the early-2027 split.<\/p>\n
Still, BofA’s argument is that investors may be applying too much of the coffee business’s risks to the company as a whole.<\/p>\n
Once the two businesses trade separately, investors will get a much clearer choice: a high-margin beverage company anchored by Dr Pepper and faster-growing partner brands, or a larger global coffee company carrying greater commodity and leverage exposure.<\/p>\n
For BofA, this is where the opportunity lies.<\/p>\n
Related: 38-year-old beloved steakhouse chain closing over 40 locations<\/p>\n
#Keurig #Pepper #breakup #reveal #stronger #business<\/p>\n","protected":false},"excerpt":{"rendered":"
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