Keurig Dr Pepper rises as Morgan Stanley upgrades the stock, citing “break out” potential

An upgrade was just what the doctor ordered.

Shares of Keurig Dr Pepper are catching a bid after Morgan Stanley boosted the stock to “overweight” from “equal weight” and raised its price target by $2 to $40.

There are four major factors fueling this upgrade of the soft drink and coffee seller, according to analysts led by Dara Mohsenian:

• Its solid pricing power domestically (with its US soda and energy drink business a source of strength in its most recent quarter);

• Reliable international growth;

• The belief that the worst is in the rearview mirror for its coffee business, which has been roiled by rising input prices; and

• It’s cheaper than other stocks in the industry that have worse fundamentals, in their view (like General Mills, Kimberly-Clark, and PepsiCo).

There’s also a technical reason behind the fundamental call, with the analysts flagging the potential for KDP to “break out” of the $30 to $35 range the shares have been in since late October and for the lion’s share of the past year.

However, Mohsenian does acknowledge that political risk looms for the company, given potential restrictions to purchasing soft drinks under the SNAP program.