BURLINGTON, Mass. - In a strategic move to expand its beverage portfolio, Keurig Dr Pepper (NASDAQ: NASDAQ:KDP) has announced a definitive agreement to acquire GHOST Lifestyle LLC and GHOST Beverages LLC, collectively known as GHOST. The acquisition, which is set to close in late 2024 or early 2025, will see KDP initially purchase a 60% stake in the rapidly growing lifestyle sports nutrition company.
GHOST, established in 2016, has seen its net sales increase fourfold over the past three years, with GHOST Energy emerging as a leading energy drink brand. The brand's success is attributed to its distinctive flavors, packaging, and strong consumer engagement. KDP's acquisition of GHOST aims to enhance its presence in the energy drink category, complementing its existing portfolio and extending its reach to new consumers.
The transaction is structured to allow KDP to acquire the remaining 40% stake in GHOST in 2028, based on the brand's financial performance in 2027. The initial cash investment for the 60% ownership is approximately $990 million, net of anticipated cash tax benefits valued at roughly $140 million. This valuation reflects a 3x net revenue multiple based on GHOST's projected 2024 financials.
KDP CEO Tim Cofer expressed enthusiasm for the partnership with GHOST's founders, highlighting the acquisition's alignment with KDP's strategy to evolve its portfolio towards consumer-preferred areas. GHOST will continue to operate within KDP's U.S. Refreshment Beverages segment under the leadership of its co-founders, Dan Lourenco and Ryan Hughes.
Lourenco, GHOST's CEO and Co-Founder, shared his excitement about joining forces with KDP, citing the company's history of nurturing disruptive brands and a shared vision for the energy category.
The acquisition is expected to be neutral to modestly accretive to KDP's adjusted EPS starting in 2025. Additionally, KDP anticipates investing up to $250 million starting in mid-2025 to transition GHOST Energy's distribution agreements to KDP's direct store delivery network.
Further details on the acquisition will be discussed during KDP's third-quarter 2024 results conference call later today.
This news is based on a press release statement.
In other recent news, Keurig Dr Pepper has seen a series of financial adjustments. Jefferies maintained a Buy rating on the company's shares, highlighting strong U.S. beverage sales, particularly an 8% growth for Dr Pepper. However, a weaker quarter is anticipated for the company's International business due to challenges in Mexico. The earnings per share (EPS) forecast for the third quarter remains unchanged at 51 cents.
TD Cowen also maintained a Hold rating, but increased the price target to $40, reflecting a revised phasing of the company's earnings estimates. The full-year 2024 EPS estimate stands firm at $1.92. Meanwhile, Deutsche Bank revised its price target to $37, maintaining a Hold rating. Citi upgraded its rating for Keurig Dr Pepper from Neutral to Buy, with a new price target set at $43.
Keurig Dr Pepper's recent second-quarter earnings report highlighted a 7% increase in earnings per share and a 3.4% rise in constant currency net sales growth. The company also announced a 7% increase in its annual dividend rate, from $0.86 to $0.92 per share. In other developments, Keurig Dr Pepper agreed to pay a $1.5 million civil penalty to the U.S. Securities and Exchange Commission (SEC) to settle charges related to misleading statements about the recyclability of its K-Cup pods.
InvestingPro Insights
As Keurig Dr Pepper (NASDAQ: KDP) moves to acquire GHOST, investors should consider some key financial metrics that underscore the company's current position. According to InvestingPro data, KDP boasts a market capitalization of $49.77 billion, reflecting its significant presence in the beverage industry. The company's revenue for the last twelve months as of Q2 2024 stands at $15.06 billion, with a modest growth of 3.4% over the same period.
KDP's financial health is further highlighted by its impressive gross profit margin of 55.82%, indicating strong pricing power and efficient cost management. This aligns well with one of the InvestingPro Tips, which notes KDP's "impressive gross profit margins." Such robust margins could provide the company with financial flexibility as it integrates GHOST into its operations.
Another relevant InvestingPro Tip points out that KDP "has raised its dividend for 4 consecutive years." This consistent dividend growth, coupled with a current dividend yield of 2.51%, may appeal to income-focused investors. The company's commitment to shareholder returns could be seen as a positive sign as it embarks on this strategic acquisition.
It's worth noting that KDP is trading at a P/E ratio of 23.25, which is relatively low compared to its near-term earnings growth potential, as suggested by another InvestingPro Tip. This valuation metric might indicate that the stock is reasonably priced, especially considering the growth prospects that the GHOST acquisition could bring.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights. In fact, there are 5 more InvestingPro Tips available for KDP, which could provide valuable context for understanding the company's financial position and future prospects in light of this acquisition.
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