Stock Analysis on Net

Keurig Dr Pepper Inc. (NASDAQ:KDP)

This company has been moved to the archive! The financial data has not been updated since July 28, 2022.

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Keurig Dr Pepper Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 10.62%
0 DPS01 0.68
1 DPS1 0.69 = 0.68 × (1 + 1.97%) 0.62
2 DPS2 0.71 = 0.69 × (1 + 3.65%) 0.58
3 DPS3 0.75 = 0.71 × (1 + 5.34%) 0.56
4 DPS4 0.80 = 0.75 × (1 + 7.03%) 0.54
5 DPS5 0.87 = 0.80 × (1 + 8.71%) 0.53
5 Terminal value (TV5) 49.88 = 0.87 × (1 + 8.71%) ÷ (10.62%8.71%) 30.11
Intrinsic value of Keurig Dr Pepper Inc. common stock (per share) $32.94
Current share price $38.50

Based on: 10-K (reporting date: 2021-12-31).

1 DPS0 = Sum of the last year dividends per share of Keurig Dr Pepper Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Keurig Dr Pepper Inc. common stock βKDP 0.65
 
Required rate of return on Keurig Dr Pepper Inc. common stock3 rKDP 10.62%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rKDP = RF + βKDP [E(RM) – RF]
= 4.68% + 0.65 [13.79%4.68%]
= 10.62%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Keurig Dr Pepper Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Dividends declared 1,008 846 845 441
Net income attributable to KDP 2,146 1,325 1,254 586
Net sales 12,683 11,618 11,120 7,442
Total assets 50,598 49,779 49,518 48,918
Stockholders’ equity 24,972 23,829 23,257 22,533
Financial Ratios
Retention rate1 0.53 0.36 0.33 0.25
Profit margin2 16.92% 11.40% 11.28% 7.87%
Asset turnover3 0.25 0.23 0.22 0.15
Financial leverage4 2.03 2.09 2.13 2.17
Averages
Retention rate 0.37
Profit margin 11.87%
Asset turnover 0.22
Financial leverage 2.10
 
Dividend growth rate (g)5 1.97%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2021 Calculations

1 Retention rate = (Net income attributable to KDP – Dividends declared) ÷ Net income attributable to KDP
= (2,1461,008) ÷ 2,146
= 0.53

2 Profit margin = 100 × Net income attributable to KDP ÷ Net sales
= 100 × 2,146 ÷ 12,683
= 16.92%

3 Asset turnover = Net sales ÷ Total assets
= 12,683 ÷ 50,598
= 0.25

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 50,598 ÷ 24,972
= 2.03

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.37 × 11.87% × 0.22 × 2.10
= 1.97%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($38.50 × 10.62%$0.68) ÷ ($38.50 + $0.68)
= 8.71%

where:
P0 = current price of share of Keurig Dr Pepper Inc. common stock
D0 = the last year dividends per share of Keurig Dr Pepper Inc. common stock
r = required rate of return on Keurig Dr Pepper Inc. common stock


Dividend growth rate (g) forecast

Keurig Dr Pepper Inc., H-model

Microsoft Excel
Year Value gt
1 g1 1.97%
2 g2 3.65%
3 g3 5.34%
4 g4 7.03%
5 and thereafter g5 8.71%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 1.97% + (8.71%1.97%) × (2 – 1) ÷ (5 – 1)
= 3.65%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 1.97% + (8.71%1.97%) × (3 – 1) ÷ (5 – 1)
= 5.34%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 1.97% + (8.71%1.97%) × (4 – 1) ÷ (5 – 1)
= 7.03%