Barclays: Keurig Dr Pepper(KDP.US) business split is correct but execution is complex. Rating lowered to "Hold".

Barclays released a research report stating that Keurig Dr Pepper (KDP.US) has decided to split its beverage and coffee business, which is essentially the right move, but the complex operational mechanism of the business split will bring "higher uncertainty and disruption" in the next 12 months. Based on this assessment, analyst Lauren Lieberman downgraded the company's stock rating from "hold" to "hold" and lowered the target price by 33% to $26 to reflect its split valuation total. Earlier, Keurig Dr Pepper announced plans to split its coffee and beverage business into two separate entities after completing the acquisition of JDE Peet's (JDEPY.US). The coffee business will include brands such as Keurig, Green Mountain, and the newly acquired Peet's Coffee, with an annual net sales of around $16 billion. The beverage business will include brands such as Dr Pepper, Canada Dry, and 7UP, with annual net sales exceeding $11 billion. Lieberman pointed out in a report to clients, "Investors have almost no objection to the idea that this asset split plan is more reasonable than the existing structure - the real issue is how to achieve this transition." Although there are still unanswered questions about the business split, Barclays' "hold" rating takes into account both the solid growth momentum of Keurig Dr Pepper's beverage and coffee business segments and the uncertainty brought by the split transaction. Lieberman stated, "The fundamentals of Keurig Dr Pepper are no longer as clearly advantageous as we have seen in Hershey Company in the past." She further pointed out that since the current two major businesses share a set of market channels and production models, after the split, the beverage business segment is likely to face some form of structural adjustment. As for the coffee business segment, Lieberman acknowledges that it will gain greater business scale and product diversity through integration, but also emphasizes that the integrated coffee business "still has significant work to be done" - especially considering JDE Peet's performance has been volatile since its IPO in 2020. Explaining the downgrade of the target price from $39, Lieberman stated that the new target price has a 2% downside compared to Keurig Dr Pepper's current stock price, as the "uncertainty and complexity related to the announced transaction are largely reflected in the current stock price." Since Keurig Dr Pepper announced its intention to acquire JDE Peet's at the end of August, its stock price has fallen by 17% and is still hovering in a low range for the past five and a half years.