Dr Pepper Snapple sustains position
Dr Pepper Snapple Group Inc. (DPS) has managed to stay strong in a challenging market marked by declining soda volumes and heightened competition in the noncarbonated space. In 2013, the US carbonated soft drink (or CSD) volumes declined by 3%. Dr Pepper Snapple’s CSD volumes declined by 2.4%, faring better than the overall CSD market and larger peer PepsiCo Inc. (PEP), which witnessed a 4.4% decline in its CSD volume.
Outperforms the giants
Since 2010, Dr Pepper Snapple’s share price has appreciated by an impressive 147%. Soda behemoths The Coca-Cola Company (KO) and PepsiCo Inc. (PEP) appreciated by 42% and 52%, respectively, during the same period. Dr Pepper Snapple outpaced even the broader market represented by the S&P 500 Index (SPY), which appreciated by 77%. The company also outperformed the Consumer Staples Select Sector SPDR fund (XLP), which appreciated by 79%. The ETF has 19.23% holdings in beverage companies.
Over the past few years, Dr Pepper Snapple has been trading at a lower price earnings (or PE) multiple than Coca-Cola and PepsiCo. PE multiple is used to perform a relative valuation of a company and its peers from a shareholder’s standpoint. Generally, a company with a lower PE compared to its peers is considered undervalued and a potential buy. However, it can also indicate that the company’s future growth prospects are not very attractive compared to its peers.
Currently, Dr Pepper Snapple is trading at a forward PE of 18.47, lower than the multiples for Coca-Cola and PepsiCo of 20.07 and 19.43, respectively.
In the last part of this series, we’ll provide a brief overview of the company’s performance in the third quarter of 2014.