Of the 22 analysts covering Dr Pepper Snapple, 15, or 68%, have given the company a “hold” recommendation as of December 31, 2015. Four analysts have given a “buy” recommendation while three have given a “sell” recommendation. The 12-month price target for Dr Pepper Snapple is $91.88, which reflects a potential downside of 1.4% compared to the stock price of $93.2 on December 31. Wall Street doesn’t seem to be favoring DPS stock anymore after a strong 30% run in 2015 and high valuation for an expected sales growth of just 2.3% in fiscal 2015 and 2.6% in fiscal 2016.
Dr Pepper Snapple’s valuation
As of December 31, 2015, Dr Pepper Snapple was trading at a 12-month forward PE (price-to-earnings) ratio of 22.2x, up 20.5% since the start of 2015. In 2015, the company’s forward PE multiple traded in the 18.3x to 22.5x range.
Dr Pepper Snapple expects its fiscal 2015 net sales to grow by about 2% and adjusted EPS (earnings per share) to come in between $3.92 and $3.98. The consensus Wall Street analysts’ adjusted EPS estimate for fiscal 2015 is $4.0, which reflects a 9.6% growth rate compared to the prior year. Analysts expect the company’s adjusted EPS to grow by about 8% in fiscal 2016.
Comparison with peers
As of December 31, 2015, Dr Pepper Snapple was trading at a higher valuation multiple than soda behemoths Coca-Cola (KO) and PepsiCo (PEP). Coca-Cola and PepsiCo were trading at forward PEs of 21.4x and 21.3x, respectively, on December 31. Analysts expect fiscal 2015 adjusted EPS for Coca-Cola and PepsiCo to decline by 2% and 1%, respectively. Dr Pepper Snapple, Coca-Cola, and PepsiCo together constitute 12.7% of the holdings of the Consumer Staples Select Sector SPDR Fund (XLP).
Monster Beverage (MNST) was trading at a forward PE of 39.9x as of December 31, 2015. Monster Beverage’s valuation spiked in August 2014, following the announcement that Coca-Cola will acquire a stake in the company. Coca-Cola and Monster Beverage completed their deal in June 2015. The consensus Wall Street analyst estimate for Monster Beverage’s fiscal 2015 adjusted EPS growth rate is 11%.
The aforementioned nonalcoholic beverage companies were trading at a premium valuation compared to the S&P 500 Consumer Staples Index with a forward PE of 20.4x and the S&P 500 Index with a forward PE of 16.8x as of December 31.
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