Friday, February 28, 2014

Is There Value In Dr. Pepper Snapple Group Inc.?

Earnings season is in full swing and with each new release comes some more data points on both past and future results.  On February 12th management at Dr. Pepper Snapple Group, Inc. (DPS) announced 4Q 2013 and full year results.  Last week I looked through both The Coca-Cola Company's earnings report as well as PepsiCo, Inc.  So why not go for the trifecta an get the third major player in the domestic soda market; and tear through Dr. Pepper Snapple Group's report and update their valuation.  On Friday, February 21st, Dr. Pepper Snapple Group closed trading at $51.74 giving a forward dividend yield of 3.17%.

DCF Valuation:

Analysts followed by Yahoo!Finance expect Dr. Pepper Snapple to grow earnings 6.90% per year over the next five years and I've assumed they can grow at 5.18% (75% of 6.90%) for the next 3 years and at 4.50% per year thereafter.  Running these numbers through a three stage DCF analysis with a 10% discount rate and summing over 30 years yields a fair value price of $59.36.  This means the shares are trading at a 12.8% discount to the discounted cash flow analysis.

Click here to read the rest of the analysis.

14 comments:

  1. I'd say there's value in DPS today, at least relative to KO and PEP. Roughly the same dividend yield as KO and higher than PEP on a lower payout ratio. Lower P/E by nearly 2x. And the small size means more room for long-term growth. I'm long DPS for these reasons.

    ReplyDelete
    Replies
    1. Headed Home,

      I like DPS as a potential investment but I'd like much better prices than are currently available. I know what I'm going to get out of KO and PEP as a dividend growth company, but DPS has a much shorter history. It'll be interesting to see which one works out the best over the next 5-10 years. Of course if I knew that now I'd be plowing my capital into that one.

      Thanks for stopping by!

      Delete
  2. Seeing how Dr. Pepper is the best drink known to man, it's bound to be a fantastic investment, too. Right? :)

    ReplyDelete
    Replies
    1. Done by Forty,

      At the right price it can be. But I do like Dr. Pepper and those flavored Canada Dry Seltzer waters look interesting. I tried to buy some this past weekend but they weren't in my grocery store. Surprising considering DPS is headquartered in Texas.

      Thanks for stopping by!

      Delete
  3. Hi PIP,

    Who are the competitors in the non-alcoholic drinks?

    I think:
    - Coca Cola,
    - PepsiCo
    - Dr Pepper Snapple
    - Monster Beverage

    And now smaller companies:
    - Sodastream
    - Reeds

    At the moment I don´t have anyone of this companies.
    But it is about time, I have to buy some shares there!

    Best regards
    D-S

    ReplyDelete
    Replies
    1. D-S,

      I like PEP the most because of the potential for international growth and the snack foods play. I like KO because they're KO. History has shown they will continue to grow profits and dividends so until that changes I'm in. I'd be willing to buy DPS but for me I need a much bigger margin of safety even though they have a lot more room for growth.

      I say get you some KO and PEP because they are both great stable companies that will continue to give you raises like clockwork.

      It took me forever to buy some PEP but I pounced when I felt there was some decent value available.

      Thanks for stopping by!

      Delete
  4. Just compare the performance of KO, PEP and DPS. DPS is way, way ahead.

    ReplyDelete
    Replies
    1. Yes but you cannot buy stock at yesterday's prices.

      Delete
    2. @Anon - Past performance of the stock isn't a guarantee of the future. I prefer to look at the past performance of the company as a guide to what I could expect in the future. DPS has its opportunities but I don't think the price warrants it right now.

      Delete
  5. I absolutely love DPS...as a drink. My favorite soda and I drink it regularly
    However I have concerns with them as an investment. To my knowledge they do not have the rights to their drinks internationally. This belonged to Cadbury, which is now Mondelez. So they are limited to the North American market.
    Not surprisingly they spend a lot of money on share buybacks.

    Look at DPS revenue growth since 2007.
    Look at KO revenue growth since 2007.
    That is why I am in KO vs DPS

    ReplyDelete
    Replies
    1. PMU,

      I have to agree on both fronts. Love the drink and I don't love the investment. Especially at the current prices. While DPS is diversified across the beverage spectrum, there's still a large exposure to CSDs which have been the boogeyman for obesity. I still don't understand why because there's much more that leads to obesity than just what you drink. Typically obese people have much more sedentary lifestyles so maybe we should start with that instead of demonizing companies.

      Thanks for stopping by!

      Delete
    2. There are lots of reasons for obesity but I believe the target against CSDs is the high fructose corn syrup and how the body metabolizes it vs glucose. Its harder on the body and requires more insulin.

      Delete
  6. I prefer to go with QQQ and IVW. They are not rocket ships, but solid performers. And of course RE is solid too.

    ReplyDelete
    Replies
    1. No Nonsense Landlord,

      I can't fault you for going with some broad dividend based ETFs as it greatly simplifies things. Real estate is something I'm hoping to move into this year as well but time has a way of moving way faster than we'd like. I can't believe it's already March.

      Thanks for stopping by!

      Delete