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Keurig Dr Pepper's Split Plan Could Unlock Hidden Value
Author: Thomas Hughes. First Published: 2/25/2026.
Key Points
- Keurig Dr Pepper's acquisition/split is on track to be completed this year.
- Analysts and institutional data reveal the stock is being accumulated.
- A successful split into pure-play companies could unlock a price-to-earnings expansion.
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Keurig Dr Pepper's (NASDAQ: KDP) stock has been under pressure for years as its businesses struggled, strategy concerns emerged, and analysts were critical. That story is changing: core businesses have returned to growth, and the planned separation into two publicly traded companies is progressing.
In its Q4 2025 earnings report, KDP detailed progress on acquiring JDE Peet's and on the planned split. The company secured an additional $1.5 billion in preferred equity, bringing the total to $4.5 billion and removing the need for a partial IPO. The transaction still involves significant debt and is expected to close in early April.
KDP Outperforms Competitors in Fiscal Q4
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Keurig Dr Pepper delivered a solid Q4, with revenue rising 10.5% to $4.45 billion, outpacing competitors and consensus estimates. All segments contributed, led by a 21% increase in International, an 11.5% rise in U.S. refreshment beverages, and a 3.9% gain in U.S. coffee. The strength was driven by pricing (up 6%) and volume/mix (up 3.9%).
Margins were resilient. Despite pressures, the company delivered income and earnings growth above forecasts, though muted relative to the top line. Adjusted operating income rose nearly 5%, adjusted earnings increased almost 2%, and free cash flow was a healthy $564 million, enabling capital returns and balance-sheet improvements ahead of the planned merger.
Guidance was upbeat: the company forecast its core business to grow about 5% on a currency-neutral basis, ahead of MarketBeat's consensus.
Sentiment improved after the release, though analysts did not immediately revise ratings. Pre-release activity was light, with the most recent updates in late 2025 affirming a Moderate Buy rating and a $35 price target.
The $35 price target is notable because it sits roughly 15% above a key support level and above the long-term exponential moving average (EMA). A sustained move above the long-term EMA, near $31.75, would signal a meaningful shift in dynamics and the potential for additional upside.
Institutions Indicate KDP Is One Hot Buy
The institutional activity in KDP is bullish, suggesting the stock is an attractive buy for long-term investors. MarketBeat's data shows institutions own approximately 94% of the stock and have been net buyers over the trailing 12 months. Aside from Q3 2025 profit-taking, buying activity ramped to long-term highs in 2025 and continued into Q1 2026, when it set a record. In Q1, the activity balance exceeded $3 bought for every $1 sold — a strong tailwind for price action.
One incentive is the planned split into two pure-play companies, which could support multiple expansion. The combined entity trades at about 15X current-year earnings, a 30%–60% discount to beverage peers like PepsiCo (NASDAQ: PEP) and Coca-Cola (NYSE: KO), and a deeper discount versus coffee peers. Starbucks (NASDAQ: SBUX) trades near 40X the current-year outlook, implying the Global Coffee Co. could see a substantial re-rating after the split.
KDP Advances After Robust Guidance
Shares moved higher after the release, advancing more than 3% and finding support at the 150-day and 30-day EMAs as the stock reached a six-month high. Momentum indicators (stochastic and MACD) are aligned with the strength. That said, the stock could top out near resistance around $31.75; a pullback to roughly $29 or lower is possible before any further advance.
Key risks remain the merger process and execution. The deal is on track but could be delayed or derailed by regulatory hurdles, and integration will be complex even if it closes as planned. The additional debt load will pressure cash flow in the coming quarters. Potential catalysts include a successful merger, sustained improvement in core consumer businesses, and tangible progress toward the eventual separation.
IBM's Steep Drop on AI Fears May Be an Overreaction
Author: Jeffrey Neal Johnson. First Published: 2/25/2026.
Key Points
- International Business Machines consistently generates exceptional free cash flow to comfortably support ongoing corporate transformation and reliable shareholder dividend payouts.
- Strategic acquisitions strongly enhance hybrid cloud architecture and provide a robust foundation for future enterprise technology expansion.
- Proprietary artificial intelligence innovations allow clients to safely modernize their legacy code directly on highly secure mainframe platforms.
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A sudden collision between cutting-edge artificial intelligence (AI) startups and legacy enterprise infrastructure wiped out billions in shareholder value. On Feb. 23, 2026, International Business Machines (NYSE: IBM) suffered its steepest single-day decline since 2000. Shares fell 13.2%, erasing roughly $30 billion in market capitalization in a matter of hours.
The trigger was a single product announcement from AI startup Anthropic. The company unveiled additional features for Claude Code, including tools that claim to automate end-to-end modernization of COBOL — the decades-old language that still powers large parts of the global financial system. Investors feared that automated code translation would instantly evaporate the lucrative infrastructure and consulting revenues tied to maintaining those systems. That panic sparked a sector-wide contagion, pulling down major IT service providers.
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But the dramatic sell-off quickly faded. The stock rebounded the next day, closing up 2.68% at $229.34 on very heavy trading of more than 13.3 million shares. Major Wall Street analysts, including teams at Wedbush and Evercore ISI, publicly called the decline an overreaction and flagged it as a buying opportunity for investors who understand enterprise technology realities.
Why AI Cannot Replace a Mainframe
Enterprise clients cannot simply abandon their mainframes because a new AI tool can translate legacy code into modern languages. Translating code syntax is not the same as modernizing a deeply integrated hardware–software architecture.
The structural moat around IBM's Z series mainframes remains intact. A basic software-as-a-service tool hosted on a public server cannot replicate the hardware-level guarantees required by the world's largest institutions. The current-generation mainframe is purpose-built from the silicon up to deliver unmatched transactional resilience:
- Massive Scale: A single system processes 25 billion encrypted transactions per day.
- AI Speed: The platform delivers roughly 450 billion AI inferences per day with one-millisecond response times.
- Extreme Reliability: The hardware operates with up to eight nines of availability.
- Future-Proof Security: The system includes quantum-safe encryption to guard against future threats.
More than 90% of the world's credit card transactions still run through these specialized systems. Regulated entities — global banks, insurance firms and governments — are unlikely to move their most sensitive operational workloads to third-party public clouds because the data sovereignty, compliance and security risks would be too great.
In fact, AI can strengthen this protective moat rather than dismantle it. IBM already offers a proprietary generative AI tool, watsonx Code Assistant for Z, which lets clients refactor and modernize legacy code directly on the mainframe without compromising enterprise-grade security.
Pristine Financials Hidden in the Noise
The market panic obscured the company's underlying financial performance. Before the AI-induced sell-off, fourth-quarter 2025 results showed broad-based growth that beat Wall Street expectations:
- Earnings Beat: Adjusted earnings per share (EPS) were $4.52, topping consensus of $4.33.
- Revenue Surge: Fourth-quarter revenue reached $19.7 billion, up 12% year over year.
- Segment Strength: Growth was driven by a 14% increase in Software revenue and a 21% jump in Infrastructure revenue.
- Record Cash: Free cash flow for full-year 2025 hit a record $14.7 billion, up $2 billion from the prior year.
The business is growing and generating substantial cash despite the market noise. IBM's internal generative-AI book of business now exceeds $12.5 billion — roughly $10.5 billion in consulting and $2 billion in software — demonstrating successful monetization of AI within regulated enterprise environments.
Management is also deploying capital to strengthen the higher-margin software mix. Recent strategic acquisitions — HashiCorp ($6.4 billion) and Confluent (NASDAQ: CFLT) ($11 billion) — enhance the company's hybrid-cloud capabilities. To deepen its AI offerings, IBM also announced a major collaboration with Deepgram to add advanced voice AI to enterprise solutions.
A 3% Dividend Yield Built on Rock-Solid Cash
The sharp drop in IBM’s share price has compressed the stock's valuation. The trailing price-to-earnings ratio (P/E) has fallen to about 20.5, presenting a more reasonable entry point than the premium seen earlier in the year. The pullback also pushed the dividend yield to an attractive 2.93%.
Management has delivered 30 consecutive years of annual dividend increases. That payout is well supported by growing free cash flow, as highlighted in the recent results. For 2026, guidance calls for more than 5% constant-currency revenue growth and an additional $1 billion of free cash flow, underscoring management's confidence in the ongoing transformation.
While the broader market fixates on short-term disruption narratives and flashy startup announcements, the underlying business metrics tell a different story. The financials remain strong, and core infrastructure is far more defensible than basic code translation implies. For patient investors, the recent volatility has created a meaningful discount to buy shares of a profitable, cash-generating, entrenched technology leader.
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