HSBC Downgrades Keurig Dr Pepper to Hold Amid JDE Peets Acquisition Concerns

HSBC analyst Sorabh Daga downgraded Keurig Dr Pepper (KDP) to Hold from Buy, lowering the price target to $30 from $42. The move follows the company's acquisition of JDE Peets, which carries a high valuation and is expected to negatively impact profit margins and increase debt burden. Daga raises concerns about Keurig Dr Pepper's ability to reduce debt effectively and manage financial obligations between its coffee and soft drink divisions.

HSBC analyst Sorabh Daga has downgraded Keurig Dr Pepper (KDP) to Hold from Buy, reducing the price target to $30 from $42. This move follows Keurig Dr Pepper's announcement to acquire JDE Peet’s for $18 billion [1]. The downgrade reflects concerns over the high valuation of the acquisition and its potential negative impact on profit margins and debt burden.

The acquisition, valued at a 20% premium to JDE Peet’s recent closing price, is expected to result in a combined business split into two U.S.-listed companies: Global Coffee Co and Beverage Co [1]. The coffee unit is projected to generate $16 billion in annual net sales, while the beverage unit is expected to exceed $11 billion [1]. However, analysts estimate that the coffee unit will hold around 20% of the global consumer packaged goods coffee market, which could be diluted by the acquisition [1].

HSBC's concerns stem from several factors. First, the acquisition's valuation at 12.9x next year’s EV/EBITDA is deemed "rich" by the analyst [2]. Second, the deal is expected to be dilutive on margins for KDP’s coffee business, which already has a current ratio of 0.64, indicating that short-term obligations exceed liquid assets [2]. Additionally, the analyst noted that the company’s decision to leverage itself up to "6-8x net debt/reported EBITDA to exit the Keurig coffee business" is concerning [2].

Daga also raised questions about the deleveraging schedule, future debt allocation between the coffee and soft drinks divisions after planned separate listings, and JAB Holding’s continued influence despite reduced ownership [2]. Keurig Dr Pepper is targeting synergies of $400 million over three years from the acquisition, but management barely discussed other strategic options when questioned during the investor call [2].

The acquisition is expected to complete in the first half of 2026, with the corporate split finalized by the end of the year [1]. Following the announcement, JDE Peet’s shares rose 17.5%, while Keurig Dr Pepper shares fell roughly 7% [1]. Moody’s Ratings has placed Keurig Dr Pepper under review for a potential downgrade, affecting its Baa1 senior unsecured ratings and Prime-2 commercial paper rating [2]. Similarly, S&P Global has placed the company on a negative credit outlook watch [2].

References:
[1] https://www.fdiforum.net/mag/featured/keurig-dr-pepper-to-acquire-jde-peets-in-18-billion-deal/
[2] https://www.investing.com/news/analyst-ratings/keurig-dr-pepper-stock-downgraded-by-hsbc-on-jde-peets-acquisition-concerns-93CH-4210860