A major beverage company is preparing for one of the biggest changes in its history after acquiring JDE Peet’s and setting the stage to divide its beverage and coffee operations.

Bank of America thinks that split could give investors a better look at what the company’s individual businesses are worth.

The bank reiterated its Buy rating and $38 price objective on Keurig Dr Pepper (KDP), representing 21.1% upside from the $31.39 price used in its Sept. 14 report, in a note given to TheStreet.

Bank of America sees breakup unlocking KDP value

BofA’s thesis rests on a sum-of-the-parts analysis of the two businesses KDP plans to create. Analysts said KDP was trading at roughly 13 times expected 2027 earnings, well below the roughly 21 times multiple for nonalcoholic beverage peers.

The first step is already complete. KDP acquired substantially all of JDE Peet’s on April 1, combining it with the company’s existing coffee operation ahead of a planned separation into Beverage Co. and Global Coffee Co. The company has said the two businesses are expected to become independent U.S.-listed companies.

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BofA sees the beverage operation as the more compelling part of that equation. Its model estimates Beverage Co. could generate roughly $13.7 billion in 2027 sales and about $4 billion in adjusted earnings before interest, taxes, depreciation, and amortization.

Using a 15-times EV/EBITDA multiple and a 29.3% adjusted EBITDA margin, the analysts estimate the beverage operation could be worth roughly $31 per KDP share. BofA argues the business deserves a premium multiple because Dr Pepper has gained share, partner brands have expanded the portfolio, and KDP has built a stronger distribution network.

Recent results give BofA some support for that view. KDP’s U.S. Refreshment Beverages sales rose 10% to $2.9 billion in the second quarter, while adjusted operating income increased 11.9%.

The segment posted a 29.9% adjusted operating margin. U.S. Coffee sales, meanwhile, declined 3.2%.

Bank of America reiterated its Buy rating and $38 price objective on Keurig Dr Pepper (KDP).

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KDP’s coffee business raises more questions

Global Coffee Co. receives a considerably lower valuation in BofA’s breakup model. The analysts estimate approximately $16.1 billion in 2027 sales and $3.1 billion in adjusted EBITDA, while valuing the business at around seven times EV/EBITDA.

That works out to about $7 per KDP share in BofA’s base case. The bank pointed to elevated leverage, volatile green-coffee costs, and less predictable sales growth as reasons the coffee company could command a lower multiple than Beverage Co.

Leadership also remains an issue heading into the split. KDP confirmed in June that Rafael Oliveira planned to leave his position leading the Coffee Operating Unit, prompting the board to begin a search for the future Global Coffee Co. CEO.

Current KDP CEO Tim Cofer is overseeing the coffee business during the transition and is expected to lead Beverage Co. after the separation.

Keurig Dr Pepper works to reduce debt before split

KDP has also been moving to address one of BofA’s biggest concerns: leverage. On Sept. 1, the company announced plans to sell its Chobani equity stake for $800 million and an Allentown, Pa., manufacturing facility for about $125 million, with net proceeds intended for debt reduction.

The company previously increased its convertible preferred financing to $4.5 billion, an investment that will remain with Beverage Co. after the separation. KDP has said operational work continues toward separation readiness by the end of 2026, although the exact timing depends partly on leverage levels and market conditions.

For now, the company says it remains on track. KDP reaffirmed its 2026 outlook in August, including $25.9 billion to $26.4 billion in net sales and a target of roughly 4.1 times pro forma management leverage by year-end.

Related: Keurig Dr Pepper breakup could reveal the stronger business