Keurig Dr Pepper Inc.KDPNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $95.47 per share(market-calibrated)

+230.6%

Upside to Fair Value

Current

$28.88

Pure Model

$104.51

Fair Value

$95.47

Bull Case

$135.39

Bear Case

$81.12

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $104.51.

What's Driving This Ratingfor KDP

✓

CapEx already efficient

CapEx at 2.85% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 20.62% — below the sector mature average of 21.97%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $7.5B (20.62% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 58.05% in Year 1 to 2.50% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 68.95% indicates efficient cash generation. FCF reaches $6.3B by Year 10 (17.23% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.30

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.86%

Cost of Debt

Pre-tax Cost of Debt3.75%

Tax Rate22.63%

After-tax Cost of Debt2.90%

Equity Weight (E/V)70.84%

Debt Weight (D/V)29.16%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (70.84% × 5.86%) + (29.16% × 2.90%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$26.2B	$30.7B	$32.3B	$34.0B	$36.6B
EBIT	$5.4B	$6.3B	$6.7B	$7.0B	$7.5B
Tax	$1.2B	$1.4B	$1.5B	$1.6B	$1.7B
NOPAT	$4.2B	$4.9B	$5.2B	$5.4B	$5.8B
+ Depreciation	$1.1B	$1.3B	$1.4B	$1.5B	$1.6B
- Capex	$747M	$875M	$921M	$967M	$1.0B
- Δ NWC	$964M	$86M	$79M	$83M	$89M
Free Cash Flow	$3.6B	$5.3B	$5.6B	$5.9B	$6.3B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$3.4B	$4.5B	$4.3B	$4.0B	$3.7B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$6.3B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$215.3B

PV of Terminal Value$126.1B

Exit Multiple Method

Year 10 EBITDA$9.1B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$182.8B

PV of Terminal Value$107.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$40.5B

PV of Terminal Value$126.1B

Enterprise Value$166.6B

(-) Net Debt$15.1B

Equity Value$151.5B

Shares Outstanding1.4B

Price per Share$111.52

Exit Multiple Method

PV of Projected FCFs$40.5B

PV of Terminal Value$107.0B

Enterprise Value$147.5B

(-) Net Debt$15.1B

Equity Value$132.4B

Shares Outstanding1.4B

Price per Share$97.50

Pure Model Fair Value

$104.51

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.50%	$153.20	$146.55	$140.20	$134.16	$128.40
4.50%	$114.18	$124.59	$140.20	$134.16	$128.40
5.50%	$92.57	$97.68	$104.51	$114.06	$128.40
6.50%	$78.16	$81.09	$84.74	$89.45	$95.72
7.50%	$67.54	$69.37	$71.57	$74.26	$77.63

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$81.12

180.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.38

Base Case

$104.51

261.9% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.30

Bull Case

$135.39

368.9% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.30

Key Assumptions & Drivers• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth58.05%

Year 3 Revenue Growth2.89%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin20.62%

Terminal EBIT Margin21.97%

Tax Rate22.63%

Historical Capex / Rev2.85%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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