Can The Chicago Bears Save Dr. Pepper?

| About: Dr Pepper (DPS)

Dr. Pepper (NYSE:DPS) recently beat Coca-Cola (NYSE:KO) in the exclusive beverage rights at Soldier Field. Soldier Field is located in Chicago and home of the Chicago Bears. The deal is a big step for the number three carbonated beverage company in the United States. The seven year deal marks the first NFL stadium that will carry Dr. Pepper products exclusively.

Chris Hibbs, vice president of marketing for the Chicago Bears had this to say about the deal,

Dr. Pepper Snapple Group came strong from [a] financial investment perspective, it was an overall vibe from them that was collaborative.

The amount the number three beverage company paid for the rights is not disclosed. Beverage offerings at the stadium from Dr. Pepper include:

  • Dr. Pepper
  • Diet Dr. Pepper
  • RC Cola
  • Diet RC Cola
  • 7UP
  • Sunkist
  • Sun Drop

Notably missing from the list is A&W, the root beer brand owned by Dr. Pepper Snapple Group. The brand is the third best selling product from the company. Root beer will not be one of the beverages offered inside the stadium. The seven brands offered inside the stadium by Dr. Pepper is an upgrade from the five previously offered by Coca-Cola (Coke, Diet Coke, Coke Zero, Sprite, Fanta).

The stadium will also include fourteen locations that sell Snapple branded products. The company hasn't released the list of flavors but these areas will include Snapple teas and juices. Energy drinks and bottled water brands owned by Dr. Pepper Snapple Group will also be sold at the stadium. Venom Energy will be the exclusive energy drink sold in the stadium. Deja Blue is the Dr. Pepper brand of bottled water that will take over for previously offered Dasani.

The south side of Soldier Field will also feature a fan area, which Dr. Pepper will have the ability to name and control. Along with having the exclusive rights to have their beverages inside the stadium, Dr. Pepper carries the rights to use the Bears logo and trademarks on products.

Recently, the National Football League entered into a sponsorship deal with Pepsi (NYSE:PEP) and Frito-Lay. The deal will spread Pepsi, Frito-Lay, Gatorade, Quaker Oats, and Tropicana with NFL tie-ins. Pepsi is rumored to have paid $15-$20 million each year to the NFL. Pepsi signed the ten year deal that began in 2012. Coca-Cola had the previous rights to the National Football League for the twenty years prior.

Dr. Pepper plays third fiddle to Pepsi and Coca-Cola at sporting events. The company also is not a major player in the restaurant fountain beverage industry. Despite Soldier Field being the smallest stadium in the NFL, the move presents a large opportunity for Dr. Pepper to enhance marketing and branding in the state of Illinois. The deal has the potential to lead to a string of sports sponsorships.

Shareholders should be optimistic in the deal and hope that it can help earnings. Shareholders will also need to hope that the deal does not end like Jones Soda (OTCQB:JSDA) did with the Seattle Seahawks. Jones Soda held the exclusive rights for beverages for three years and then terminated the deal before Coca-Cola took over the rights. Soldier Field will now be the only stadium to not have Coca-Cola or Pepsi as the major beverage provider.

Along with the Chicago Bears deal, other upcoming highlights for Dr. Pepper include:

· Marketing campaign centered around Marvel's (NYSE:DIS) The Avengers blockbuster summer movie.

· Partnership with Guy Fieri, celebrity food chef, who will utilize Dr. Pepper beverages into recipes.

· Sponsoring the PJ Awards, the number one awards show with Hispanic audiences, to target Hispanic customers.

· Twenty ounce bottles with Facebook (NASDAQ:FB) credits and ramped up social marketing campaigns to grow fan pages on the leading social network.

· Partnership with America's Got Talent.

· Launch of Snapple Diet in the Half 'n Half flavor, which is a growing category across the nation.

Shares of Dr. Pepper Snapple Group traded down 2.5% on Wednesday's earnings release day. First quarter earnings disappointed with flat sales across carbonated beverages. The company reported earnings per share of $0.48, versus analysts' targeted $0.50. The $1.36 billion reported in sales was a slight increase in last year's $1.33 billion reported during the first quarter.

Dr. Pepper Snapple Group is forecasting sales growth of 3-5%. Earnings per share are forecasted to be $2.90-$2.98. We'll use the middle analysts' targeted $2.93 (Yahoo Finance) to compare Dr. Pepper with other beverage companies below:

· Coca-Cola

Share Price: $74.93

Earnings Per Share 2012: $4.10

Price to Earnings 2012: 18.3

Earnings Per Share 2013: $4.49

Price to Earnings 2013: 16.7

Dividend Yield: 2.8%

· Dr. Pepper

Share Price: $39.31

Earnings Per Share 2012: $2.93

Price to Earnings 2012: 13.4

Earnings Per Share 2013: $3.19

Price to Earnings 2013: 12.3

Dividend Yield: 3.4%

· Pepsi

Share Price: $66.67

Earnings Per Share 2012: $4.09

Price to Earnings 2012: 16.3

Earnings Per Share 2013: $4.44

Price to Earnings 2013: 15.0

Dividend Yield: 3.1%

Dr. Pepper shares have the cheapest price to earnings ratio both on a current and forward basis. The company also offers a slightly better dividend yield than long term payers Pepsi and Coca-Cola. Dr. Pepper doesn't have the growth or emerging markets potential as the two larger players. With the Soldier Field deal and upcoming partnerships, Dr. Pepper Snapple shares may be worth a look. I have a price target of $47.85, based on 15x next year's earnings.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DPS over the next 72 hours.

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