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Why Analysts Have a ‘Hold’ Rating for Dr Pepper Snapple’s Stock

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Stock price movement in 2016

On a YTD (year-to-date) basis, Dr Pepper Snapple Group’s (DPS) stock has risen by 5.4% to $97.21, as of July 13. The company’s stock price has risen by 7.6% since the announcement of its 1Q16 results in April 2016. Dr Pepper Snapple exceeded analysts’ sales and earnings estimates in 1Q16. On a YTD basis, the company’s stock has outperformed the S&P 500 Index, which has risen 6.9%, as of July 13.

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Comparison with peer group

As of July 13, nonalcoholic beverage peers Coca-Cola (KO), PepsiCo (PEP), and Monster Beverage (MNST) have risen by 7.9%, 11.3%, and 12.1%, respectively, on a YTD basis.

Together, Dr Pepper Snapple Group, Coca-Cola, PepsiCo, and Monster Beverage account for about 16.1% of the Consumer Staples Select Sector SPDR Fund (XLP). XLP has risen 11.8% on a YTD basis.

On a YTD basis, Dr Pepper Snapple Group, Coca-Cola, PepsiCo, and Monster Beverage have delivered total returns of 5.3%, 8.1%, 11.9%, and 8.3%, respectively. Total shareholder return takes into account stock price appreciation, dividends, and other income realized during a given period.

Analysts’ recommendations

As of July 13, 14 out of 21 analysts (67%) covering Dr Pepper Snapple’s stock had a “hold” recommendation. Four analysts had a “buy” recommendation, and three analysts had a “sell” recommendation. The consensus “hold” recommendation is supported by the company’s consistent performance over the past few quarters and improved margins. However, Dr Pepper Snapple Group has significant exposure to carbonated beverages. This might work against the company, given the persistent weakness in US soda volumes.

Dr Pepper Snapple Group is growing its presence in the non-carbonated beverage category by collaborating with allied brands. In its 1Q16 conference call, the company disclosed two new partnerships:

  • Core Hydration, a purified water, rich with electrolytes and minerals
  • High Brew Coffee, a cold-brewed, ready-to-drink coffee

As of July 13, the 12-month price target for Dr Pepper Snapple’s stock was $96.06. This estimate reflects potential for a 1% drop compared to the company’s stock price on July 13.

We’ll discuss the company’s valuation in the concluding part of this series.

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