Dr Pepper Snapple’s Valuation: The Impact of 3Q17 Results



Impact of 3Q17 results

Dr Pepper Snapple’s (DPS) 12-month forward PE (price-to-earnings) ratio fell 6.8% to 18.0x on October 25, 2017, in reaction to the company’s 3Q17 results. As we saw in the previous parts of this series, the company missed analysts’ sales and earnings estimates and lowered its 2017 earnings guidance. As of October 27, 2017, DPS was trading at a 12-month forward PE ratio of 18.2x.

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Peer valuations

Dr Pepper Snapple is currently trading at a lower valuation multiple than its nonalcoholic beverage peers. As of October 27, 2017, Coca-Cola (KO), PepsiCo (PEP), and Monster Beverage (MNST) were trading at 12-month forward PE ratios of 23.8x, 20.3x, and 35.9x, respectively.

DPS is also trading at a lower valuation multiple than the S&P 500 Index with a forward PE ratio of 18.5x and the S&P 500 Consumer Staples Index with a forward PE ratio of 20.2x.

The 12-month forward PE ratio differs among peers due to factors such as growth expectations, risks involved, and leverage.

Growth expectations

Analysts expect Dr Pepper Snapple’s sales to rise 4.2% to $6.7 billion in 2017. Currently, they expect 2018 sales to rise 3.5% to $6.9 billion. They’re forecasting the company’s adjusted EPS (earnings per share) in 2017 to rise ~3.0% to $4.52. Adjusted EPS in 2018 is expected to rise ~7.1% to $4.84.

As we’ve seen in this series, DPS lowered its 2017 adjusted EPS guidance to reflect the impact of the recent hurricanes in the United States and the earthquakes in Mexico.

We’ll look at the impact of Dr Pepper Snapple’s 3Q17 results on analysts’ stock price target in the next part of this series.


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