Stock Analysis on Net

Keurig Dr Pepper Inc. (NASDAQ:KDP)

This company has been moved to the archive! The financial data has not been updated since July 28, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Keurig Dr Pepper Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 10.41%
01 FCFE0 766
1 FCFE1 781 = 766 × (1 + 1.97%) 707
2 FCFE2 810 = 781 × (1 + 3.70%) 664
3 FCFE3 854 = 810 × (1 + 5.43%) 634
4 FCFE4 915 = 854 × (1 + 7.16%) 616
5 FCFE5 996 = 915 × (1 + 8.88%) 607
5 Terminal value (TV5) 70,910 = 996 × (1 + 8.88%) ÷ (10.41%8.88%) 43,210
Intrinsic value of Keurig Dr Pepper Inc. common stock 46,439
 
Intrinsic value of Keurig Dr Pepper Inc. common stock (per share) $32.79
Current share price $38.50

Based on: 10-K (reporting date: 2021-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of Keurig Dr Pepper Inc. common stock βKDP 0.65
 
Required rate of return on Keurig Dr Pepper Inc. common stock3 rKDP 10.41%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rKDP = RF + βKDP [E(RM) – RF]
= 4.43% + 0.65 [13.60%4.43%]
= 10.41%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Keurig Dr Pepper Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Dividends declared 1,008 846 845 441
Net income attributable to KDP 2,146 1,325 1,254 586
Net sales 12,683 11,618 11,120 7,442
Total assets 50,598 49,779 49,518 48,918
Stockholders’ equity 24,972 23,829 23,257 22,533
Financial Ratios
Retention rate1 0.53 0.36 0.33 0.25
Profit margin2 16.92% 11.40% 11.28% 7.87%
Asset turnover3 0.25 0.23 0.22 0.15
Financial leverage4 2.03 2.09 2.13 2.17
Averages
Retention rate 0.37
Profit margin 11.87%
Asset turnover 0.22
Financial leverage 2.10
 
FCFE growth rate (g)5 1.97%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2021 Calculations

1 Retention rate = (Net income attributable to KDP – Dividends declared) ÷ Net income attributable to KDP
= (2,1461,008) ÷ 2,146
= 0.53

2 Profit margin = 100 × Net income attributable to KDP ÷ Net sales
= 100 × 2,146 ÷ 12,683
= 16.92%

3 Asset turnover = Net sales ÷ Total assets
= 12,683 ÷ 50,598
= 0.25

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 50,598 ÷ 24,972
= 2.03

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.37 × 11.87% × 0.22 × 2.10
= 1.97%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (54,519 × 10.41%766) ÷ (54,519 + 766)
= 8.88%

where:
Equity market value0 = current market value of Keurig Dr Pepper Inc. common stock (US$ in millions)
FCFE0 = the last year Keurig Dr Pepper Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Keurig Dr Pepper Inc. common stock


FCFE growth rate (g) forecast

Keurig Dr Pepper Inc., H-model

Microsoft Excel
Year Value gt
1 g1 1.97%
2 g2 3.70%
3 g3 5.43%
4 g4 7.16%
5 and thereafter g5 8.88%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 1.97% + (8.88%1.97%) × (2 – 1) ÷ (5 – 1)
= 3.70%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 1.97% + (8.88%1.97%) × (3 – 1) ÷ (5 – 1)
= 5.43%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 1.97% + (8.88%1.97%) × (4 – 1) ÷ (5 – 1)
= 7.16%