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Keurig Dr. Pepper stock downgraded by Goldman Sachs over margin risks

Yahoo Finance Live looks at soft drink manufacturer Keurig Dr. Pepper's following a downgrade by Goldman Sachs analysts.

Video transcript

RACHELLE AKUFFO: It's time for triple play, the three stocks that we're watching in the final 30 minutes of trading. We have Keurig, Dr. Pepper, Domino's, and General Motors. So we're starting off with my pick, which is Keurig Dr. Pepper, ticker symbol KDP. Now, shares of the beverage maker under pressure this afternoon, down about 3% there, falling this afternoon after a downgrade from Goldman Sachs to neutral from buy.

Now, as the reason for caution, Bonnie Herzog and her team at Goldman really cited an increased risk to margins as commodity inflation, especially coffee related, remains elevated for KDP versus its peers, based on Goldman's updated commodity tracker. So they also lowered full year 2022 and 2023 estimates slightly, putting them below consensus.

Now, on top of that, though, you have other headwinds for KDP that include brewer household penetration starting to normalize. You have pod attach rates moderating. And then, of course, a slowdown in their packaged beverage business growth market and market share gains also slowing as well.

But not all bad news. Goldman also said that KDP is still executing well, despite the challenging environment, and also has strong underlying momentum in its coffee and packaged beverage businesses. And they also highlighted ongoing initiatives to expand and enhance distribution capabilities. So, clearly not a bad day for KDP at this point, but obviously, that caution, though, really weighing on the stock there, as we said, down about 3% today, Seana.

SEANA SMITH: Yeah, higher commodity prices obviously an issue here for Keurig Dr. Pepper, also an issue for many of their peers out there. It's interesting, though, that this call is coming out now because the company has actually been able to weather the uptick that we've seen in coffee prices relatively well.

Taking a look at that one-year chart, the stock is still in the green. Yes, it's getting hit today because of this call from Goldman Sachs, but over the past year, stock up still about 6%. So we'll see how high potentially the coffee prices might climb and when, of course, that would be an issue here for Keurig Dr. Pepper.