When one door closes, another one often opens up.
With Keurig's $18.7 billion deal for Dr. Pepper Snapple Group (DPS) set to close on July 9, surging sports drink brand BodyArmor -- which is more than 15% owned by Dr. Pepper Snapple Group -- could find a new home says Wells Fargo analyst Bonnie Herzog. That new home may be Coca-Cola (KO) , which for years has struggled to make strong headway into a sports drink category dominated by PepsiCo's (PEP) Gatorade brand. Coca-Cola owns the Powerade sports drink brand.
"We think there is a decent chance that Keurig Dr. Pepper could lose BODYARMOR following the completion of the Dr. Pepper and Keurig merger (which closes on 7/9) given we don't think the new Keurig Dr. Pepper management team is interested in maintaining minority stakes (such as those Dr. Pepper undertook with its allied brands). As such, we think there's a good chance BODYARMOR could seek out a new partner/owner and we think Coca-Cola would be very interested in the brand given its success (with BODYARMOR's retail sales over the last 52-weeks of $263 million in the Sports Drink category per Nielsen, up 84% y/y). We think Coca-Cola would position BODYARMOR as a premium, isotonic brand above Powerade."
BodyArmor was launched in 2011 by VitaminWater/Smartwater founder Mike Repole (who sold VitaminWater maker Glaceau to Coke for $4.2 billion in 2007) as a better-for-you sports drink. Each of the brand's flavors boast coconut water, more electrolytes than traditional sports drinks and are lower in sodium.
Here's why Jim Cramer's Action Alerts PLUS is bullish on PepsiCo.