Keurig Dr Pepper Inc. (KDP) stock intrinsic value fair value estimate & owner earnings analysis

Keurig Dr Pepper sells soft drinks and coffee. Through 2025 it reported three segments: U.S. Refreshment Beverages ($10.4 billion of 2025 net sales: Dr Pepper, Canada Dry, A&W, 7UP, Snapple, Mott's, GHOST and partner brands carried through its own delivery and warehouse systems, plus concentrate sold to bottlers and fountain syrup), U.S. Coffee ($4.0 billion: Keurig brewers and K-Cup pods) and International ($2.2 billion, mainly Canada and Mexico). In the first half of 2026 it bought JDE Peet's, owner of Jacobs, L'OR and Peet's, through a cash tender offer at EUR 31.85 per share, and it intends to split into two listed companies, one for beverages and one for coffee. How we measured earnings. We use owner earnings: operating cash flow with working-capital swings removed, less stock compensation and the capital spending needed to maintain the business (spending attributable to sales growth is excluded). Three judgements matter. First, payables rose by $0.6-0.9 billion a year in 2019-2022 (payables reached 167 days at the end of 2022), then the company shortened supplier terms (113 days at the end of 2023), pulling about $1.6 billion of cash out in 2023; we treat these as timing, not earnings. Second, the company pays customers for cold-drink equipment and similar programs, books the payments as assets and amortizes them; that cash-flow line has run $190-460 million a year and we treat it as an ongoing cost rather than working capital. Third, we removed about $300 million of one-time cash from the 2022 BodyArmor litigation settlement. On that basis the pre-acquisition business earned $1.54 per share in 2022, $1.69 in 2023, $1.42 in 2024 (a heavy capital-spending year) and $1.77 in 2025, roughly $1.9-2.4 billion a year. We anchor on the middle of those four years, about $1.61 per share. The 25% rise in 2025 was mostly a rebound from a weak 2024, so we do not extend it; the base case starts at 3% growth. What changed in 2026. The JDE Peet's purchase used about $16.6 billion of cash in the first half of 2026. It was funded with new borrowing (total debt about $30 billion at June 30, 2026 versus about $16 billion at the end of 2025, with about $8.4 billion due within a year, including a 364-day euro term loan facility of up to EUR 10.35 billion), $4.5 billion of convertible preferred stock sold to KKR and Apollo affiliates paying 4.75% a year and convertible at $37.25 per share, and $4 billion from outside investors for a 49% stake in a new joint venture that owns the K-Cup pod manufacturing plants in the U.S. and Canada. Together these put about $1.0 billion a year, roughly $0.70 per share, of new claims ahead of common shareholders: net interest rose from $180 million in the second quarter of 2025 to $336 million in the second quarter of 2026 (about $0.35 per share a year after tax), preferred dividends of about $214 million a year ($0.16), and the joint-venture partners' share of pod profits ($68 million in the second quarter, about $0.20 a year). The filings do not yet show JDE Peet's own profitability. There is one quarter of combined results, and it is cluttered by deal effects: second-quarter 2026 sales were $7.3 billion versus $4.2 billion a year earlier, but net income to common shareholders fell to $60 million ($0.04 per share) from $547 million, with stock compensation of $177 million versus $23 million and intangible amortization of $124 million versus $34 million. The cash picture is steadier: first-half 2026 operating cash flow before working-capital changes, less stock compensation and capital spending, was about $1.14 billion versus $1.12 billion a year earlier, despite higher interest and transaction costs. The new amortization is a non-cash charge on acquired assets and is not deducted from owner earnings; to avoid treating those assets as permanently growing, we credit JDE Peet's with no growth in any case. The cases. Base, $34 per share: JDE Peet's cash earnings cover the claims its purchase created, so common shareholders keep about $1.61 per share. That grows 3% a year for ten years from price increases and the steady addition of partner brands to the beverage network (2025 sales grew about 5% excluding the GHOST acquisition and currency: 3.8% from price and about 1% from volume), with coffee flat. After year ten, earnings are held flat, carried by the owned brand portfolio. Bear, $21: JDE Peet's covers only the added interest, leaving preferred dividends and the joint-venture share as a permanent $0.36 per share drag, and nothing grows. The evidence for this case is in the filings: U.S. Coffee sales were flat in 2025 ($3.99 billion versus $3.97 billion), 2025 gross profit rose only 5.5% on 8.2% sales growth because of ingredient, materials and tariff costs, 2024 brought $718 million of write-downs on refreshment brands and the warehouse-direct business, and roughly $30 billion of debt, much of it short-term acquisition financing, must be refinanced. Bull, $40: the same starting point as the base, but the beverage business keeps compounding at its recent 5% pace for ten years. We did not credit promised cost savings, benefits from the separation or any improvement at JDE Peet's, because none has happened yet. Everything is discounted at 6%. Debt is not subtracted separately because owner earnings are measured after interest; leverage is reflected in the bear case. The preferred stock is treated as a fixed claim; if the shares traded well above $37.25 it would convert and share in the gain. What could make this wrong: JDE Peet's could earn materially more or less than its financing cost, which the first full year of combined results will settle; the separation could add cost or leave one half with too much debt (the preferred investors can block it if net leverage afterward would exceed 4.0 times); the short-term acquisition loan could be refinanced at higher rates; and pod economics could be squeezed now that 49% of pod-manufacturing distributions go to outside investors. The margin-of-safety price is about $21, roughly the bear-case value and 38% below the base, and it applies once a full year of combined results confirms that JDE Peet's is covering its financing costs.