Keurig Dr Pepper (KDP)

Total return at 5 years: 3.0%/year = -0.1% appreciation + 3.1% dividend. The target price ($33) is ex-dividend; the $5 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $31 · Multiples $31) is below the market price ($33).

Today — expensive, no margin of safety: at $33 trades ~7.1% above its value discounted to today (~$31); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($33) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$20.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($33) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (9.3%/year) is in line with our base case (8.0%/year) → the price is consistent with the projection.

That growth implies ~$2.1 bn of owner earnings in year 5 (vs ~$2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta a comunes normalizada (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM ended 30-Jun-2026 exactly as XBRL tagged it — $20.09bn of revenue and $1.43bn of net income — and that number contains only one quarter (Apr-Jun 2026) of JDE Peet's, because the acquisition closed on 1-Apr-2026 and the mechanical TTM formula (FY2025 + cumulative 2026 − cumulative 2025) does not yet capture four quarters of the combined business. That distortion is resolved in year +1, not in year 0: the revenue path takes a large jump in the first year (not organic, it is the annualization of JDE Peet's, whose first full quarter —Apr-Jun 2026— posted US$2.80bn with an adjusted operating margin of 14.8%) and from year +2 the company grows on a full twelve-month base of the combined business. The net margin starts depressed (7.1% in the TTM) because it absorbs transaction costs (the step-up to fair value of acquired inventory, transaction fees, higher interest expense and the non-controlling interest in the capsule manufacturing joint venture, plus the dividend on the 4.75% convertible preferred shares) and expands going forward as those non-recurring costs run out and the company meets its management leverage target of ~4.1x by the end of 2026. The valuation treats KDP as a sum of the parts with three pieces — US and International Beverages, US Coffee (legacy) and JDE Peet's — each with its own exit multiple within the consumer staples band [16,22]; each piece's weight in the blended multiple comes from its share of terminal operating income, not from a single multiple set by eye on the consolidated figure. The debt/cash level is not subtracted separately in the bridge (the consumer staples convention: starting cash and debt at zero) because the net income to common that feeds the P/E is already net of interest, of the non-controlling interest and of the preferred dividend — subtracting the debt again would count it twice.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $33 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $33, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $33 in 5 years plus $5 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $31. Against the current market price ($33), the margin of safety is -7.1% (trades above the maximum → a premium is paid) and the total return at that price would be 3.0% annually.

• Multiple below the band average. The combined multiple (~19x) sits below the ceiling of the consumer staples band given JDE Peet's weight, still in integration.
• Margin of safety present. The market price trades with a margin against the base case's five-year value.
• Bear scenario limits the downside. Even in the bear scenario, the five-year value stays close to the current price, without a sharp decline.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (156%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation under temporary pressure. TTM free cash flow is compressed by non-recurring acquisition costs; expected to recover as deleveraging proceeds.
• ROIC structurally below the bar. ~5.2% on invested capital, dragged down by the acquisition's goodwill and intangibles, not by weak operating returns.
• Real reinvestment runway in global coffee. JDE Peet's scale opens a runway of synergies and international growth not yet captured in the reported margin.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The three legacy segments (Beverages, U.S. Coffee, International) are shown at revenue levels because they are the comparable base against prior years. JDE Peet's has no three-year series within KDP — it closed Apr-1-2026 — so its scale is stated in the prose ($2.80bn of sales in its first full quarter) rather than forcing a nonexistent historical series.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Non-organic jump in year 1. First-year growth reflects the annualization of JDE Peet's, not an organic acceleration of the business.
• GHOST and energy drink momentum. Contributed 3.8 percentage points to consolidated volume/mix growth in 2025.
• U.S. Coffee flat. The legacy segment grows essentially flat once the volume decline is netted out.

• Long-standing brand. Portfolio of 150+ brands with historical recognition, now expanded with Jacobs, L'OR, and Peet's.
• Razor-and-blade model. The installed base of Keurig brewers sustains recurring pod consumption, though legacy U.S. volume is declining.
• Volume decline in U.S. Coffee. K-Cup pods -3.9% and appliances -18.0% in 2025, without a full price offset.
• Global coffee scale after JDE Peet's. Presence in 100+ markets, though the segment is newly integrated and its adjusted margin (14.8%) is still low.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✕Interest coverage (EBIT / interest)2.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 156% of ROIC
• ✕Value creation (ROIC − 10% bar)-5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.6x — no over-investment
• ✓Float / working capitalFrees up cash $0.6 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Elevated leverage. ~4.4x management leverage at the June 2026 close, above the stated ~4.1x target.
• Adequate liquidity. Cash of $1.52bn and positive operating cash generation even during the quarter the acquisition closed.
• Complex capital structure. New convertible preferred stock and noncontrolling interest introduce payment priority ahead of common stock.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Deleveraging priority. Explicit commitment to a ~4.1x leverage target by year-end 2026, with buybacks essentially paused.
• Low insider ownership. Neither the CEO nor the executive team holds a material equity stake per the 2026 proxy.
• Capital structure complexity. New convertible preferred stock senior to common stock and a new noncontrolling interest, both carrying rights that reduce financial flexibility.

• Motivated selling driven by integration uncertainty: the market punishes the stock following the announcement of a large acquisition funded with debt, noncontrolling interest, and convertible preferred stock, before seeing synergy results
• Holding-company complexity that is hard to model: four segments, two pending corporate transactions (integration + separation), and a new capital structure with preferred stock senior to common stock
• Short-term noise around U.S. Coffee volume, which obscures the global coffee scale the JDE Peet's acquisition actually built

The company itself acknowledges in its earnings release that the stock price already fell following the announcement of the JDE Peet's acquisition and the pending separation — an identifiable source of discount, not merely the absence of a catalyst.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -16%/year (-59% total): the margin of safety protects the downside. The bull (+14%/year, +94% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Integration risk. The JDE Peet's integration and the subsequent separation concentrate most of the thesis's execution risk.
• Leverage risk. Servicing the new debt depends on deleveraging proceeding as planned.
• U.S. coffee category risk. The pod and appliance volume decline may not reverse even if the JDE Peet's integration succeeds.
• Concentrated supplier risk. Dependence on a limited number of external manufacturers, mainly in Asia, for Keurig brewing systems.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 5% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 8% at a PEG of 3.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 5% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 9%, in line with our 8%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -21%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 9% vs our 8%: coherent, but at the optimistic end of the range.