BofA says Keurig Dr Pepper reaction shows investors wanted different structure

BofA analyst Peter Galbo notes that Keurig Dr Pepper (KDP) shares have declined 18% in the two days since the JDE Peet’s (JDEPF) merger was announced, which the firm reads as an indication that investors would have preferred the company to separate its Keurig coffee business from the Dr. Pepper cold beverage side and then decide on a go forward structure. While the firm sees the benefits of a standalone cold beverage company that it believes should trade at a multiple closer to peers like Coca Cola (KO), the complexity of merging and then spinning and the levering of the balance sheet “elicit caution” and significant upside on a combined basis will be difficult unless valuation multiples expand, the analyst tells investors. BofA has a Buy rating and $41 price target on Keurig Dr Pepper shares.