Better Buy: Keurig Dr Pepper vs. Monster Beverage

Keurig Dr Pepper Inc. (KDP) in Plano, Tex., operates as a beverage company in the U.S. and internationally. The company operates through Coffee Systems; Packaged Beverages; Beverage Concentrates; and Latin America Beverages segments. In comparison, Monster Beverage Corporation (MNST) in Corona, Calif., develops, markets, distributes, and sells energy beverages and concentrates in the United States and internationally. The company operates through Monster Energy Drinks; Strategic Brands; and Other segments.

Multi-decade-high inflation and the Federal Reserve’s tighter monetary policy could lead to an economic slowdown. Despite being defensive in nature, consumer staples stocks witnessed a sell-off due to disappointing earnings from big retailers and a decline in consumer spending. However, the stocks of consumer staples companies are considered reliable investments amid an inflationary environment due to inelastic demand for the sector’s products, which allows them to perform steadily in all business cycles. Therefore, both KDP and MNST should stay afloat.

MNST stock has gained marginally over the past month, while KDP has delivered negative returns. Also, MNST has gained 8.9% in price over the past three months compared to KDP’s negative returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

On April 22, 2022, KDP priced a $3 billion senior unsecured notes issue. The net proceeds from the offering might be used to fund the redeem outstanding notes senior unsecured notes.

On Jan,13, 2022, MNST agreed to acquire CANarchy Craft Brewery Collective LLC, a craft beer and hard seltzer company. Rodney Sacks, MNST’s Chairman and Co-CEO, said, “The acquisition will provide us with a fully in-place infrastructure, including people, distribution and licenses, along with alcoholic beverage development expertise and manufacturing capabilities in this industry.”

Recent Financial Results

KDP's net sales increased 6.1% year-over-year to $3.08 billion in its fiscal first quarter, which ended March 31, 2022. Its income from operations rose 50.9% year-over-year to $966 million. In addition, its net income and EPS came in at $585 million and $0.41, respectively, registering an increase of 80% and 78.3% year-over-year.

In its fiscal first quarter, ended March 31, 2022, MNST's net sales increased 22.1% year-over-year to $1.52 billion. However, its operating income declined 3.5% year-over-year to $399.49 million. Also, the company’s net income and EPS came in at $294.20 million and $0.55, respectively, registering a  6.7% and 6.8%, respectively, from the prior-year period.

Past and Expected Financial Performance

KDP’s revenue and EPS have grown at CAGRs of 12.6% and 42.9%, respectively, over the past three years. Analysts expect KDP’s revenue to increase 8% in the current year and 4.1% next year. The company’s EPS is expected to grow 5.6% in the current year and 8.9% next year. Furthermore, its EPS is expected to grow  7.1% per annum over the next five years.

In comparison, MNST’s revenue and EPS have grown at CAGRs of 14.2% and 10.8%, respectively, over the past three years. The company’s revenue is expected to increase 15.5% in the current year and 10.2% next year. Its EPS is expected to grow 5.1% in the current year and 18.9% next year. Also, MNST’s EPS is expected to grow at 14.6% per annum over the next five years.

Profitability

KDP’s trailing-12-month revenue is 2.21 times what MNST generates. However, MNST is relatively more profitable, with an EBITDA and net income margin of 31.64% and 23.32% , respectively, compared to KDP’s 29.39% and 18.71%.

Furthermore, MNST’s 22.01%, 15.18%, and 18.05% respective ROE, ROA, and ROTC are higher than KDP’s 9.70%, 3.77%, and 4.94%.

Valuation

In terms of forward non-GAAP P/E, MNST is currently trading at 32.50x, which is 55.1% higher than KDP’s 20.96x. Furthermore, MNST’s 22.18x forward EV/EBITDA  is 48.6% higher than KDP’s 14.93x.

So, KDP is more affordable.

POWR Ratings

KDP has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. In contrast, MNST has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

KDP has a B grade for Stability, which is in sync with its beta of 0.63. In comparison, MNST has a C grade for Stability, consistent with its beta of 0.90.

Among the 35 stocks in the A-rated Beverages industry, KDP is ranked #15. However, MNST is ranked #25 out of 35 stocks in the same industry.

Beyond what I have stated above, we have also rated the stocks for Value, Sentiment, Growth, Quality, and Momentum. Click here to view all the KDP ratings. Also, get all the MNST ratings here.

The Winner

The businesses of KDP and MNST are almost recession-proof, which should help them attract immense investors’ attention amid the current uncertain times. However, even though both KDP and MNST are expected to stay afloat in the near term, we think it is better to bet on KDP now because of its robust financials and lower valuation.

Our research shows that the odds of success increase when one invests in stocks with an overall POWR Rating of Strong Buy or Buy. View all the other top-rated stocks in the Beverages industry here.

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