Stock Analysis on Net
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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Keurig Dr Pepper Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.90%
01 FCFF0 2,499
1 FCFF1 2,531 = 2,499 × (1 + 1.28%) 2,324
2 FCFF2 2,587 = 2,531 × (1 + 2.23%) 2,181
3 FCFF3 2,669 = 2,587 × (1 + 3.17%) 2,067
4 FCFF4 2,779 = 2,669 × (1 + 4.12%) 1,976
5 FCFF5 2,920 = 2,779 × (1 + 5.07%) 1,906
5 Terminal value (TV5) 79,985 = 2,920 × (1 + 5.07%) ÷ (8.90% – 5.07%) 52,217
Intrinsic value of Keurig Dr Pepper Inc. capital 62,672
Less: Short-term borrowings, long-term obligations (including current portion), and finance lease liability (fair value) 13,927
Intrinsic value of Keurig Dr Pepper Inc. common stock 48,745
 
Intrinsic value of Keurig Dr Pepper Inc. common stock (per share) $34.42
Current share price $38.50

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

1 See details »

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.

Weighted Average Cost of Capital (WACC)

Keurig Dr Pepper Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 54,519 0.80 10.47%
Short-term borrowings, long-term obligations (including current portion), and finance lease liability (fair value) 13,927 0.20 2.76% = 3.67% × (1 – 24.80%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,416,070,252 × $38.50
= $54,518,704,702.00

   Short-term borrowings, long-term obligations (including current portion), and finance lease liability (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (23.30% + 24.40% + 26.00% + 25.50%) ÷ 4
= 24.80%

WACC = 8.90%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Keurig Dr Pepper Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Interest expense 500 604 654 452
Net income attributable to KDP 2,146 1,325 1,254 586
 
Effective income tax rate (EITR)1 23.30% 24.40% 26.00% 25.50%
 
Interest expense, after tax2 384 457 484 337
Add: Dividends declared 1,008 846 845 441
Interest expense (after tax) and dividends 1,392 1,303 1,329 778
 
EBIT(1 – EITR)3 2,530 1,782 1,738 923
 
Short-term borrowings and current portion of long-term obligations 304 2,345 1,593 1,458
Current finance lease liability 79 44 41 26
Long-term obligations, excluding current portion 11,578 11,143 12,827 14,201
Non-current finance lease liability 621 298 269 305
Stockholders’ equity 24,972 23,829 23,257 22,533
Total capital 37,554 37,659 37,987 38,523
Financial Ratios
Retention rate (RR)4 0.45 0.27 0.24 0.16
Return on invested capital (ROIC)5 6.74% 4.73% 4.58% 2.40%
Averages
RR 0.28
ROIC 4.61%
 
FCFF growth rate (g)6 1.28%

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).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 500 × (1 – 23.30%)
= 384

3 EBIT(1 – EITR) = Net income attributable to KDP + Interest expense, after tax
= 2,146 + 384
= 2,530

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,530 – 1,392] ÷ 2,530
= 0.45

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,530 ÷ 37,554
= 6.74%

6 g = RR × ROIC
= 0.28 × 4.61%
= 1.28%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (68,446 × 8.90% – 2,499) ÷ (68,446 + 2,499)
= 5.07%

where:

Total capital, fair value0 = current fair value of Keurig Dr Pepper Inc. debt and equity (US$ in millions)
FCFF0 = the last year Keurig Dr Pepper Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Keurig Dr Pepper Inc. capital

FCFF growth rate (g) forecast

Keurig Dr Pepper Inc., H-model

Microsoft Excel
Year Value gt
1 g1 1.28%
2 g2 2.23%
3 g3 3.17%
4 g4 4.12%
5 and thereafter g5 5.07%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 1.28% + (5.07% – 1.28%) × (2 – 1) ÷ (5 – 1)
= 2.23%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 1.28% + (5.07% – 1.28%) × (3 – 1) ÷ (5 – 1)
= 3.17%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 1.28% + (5.07% – 1.28%) × (4 – 1) ÷ (5 – 1)
= 4.12%