Dr Pepper Snapple Group (DPS) is at an all-time high since being spun off from Cadbury Schweppes over four years ago. Since the spinoff in 2008, Dr Pepper has grown its share price two fold increasing earnings per share by over 13% annually and share price by 12% on a year over year basis. And even though Dr Pepper is priced at the highest levels it has seen in four years, it still has some room for its share price to grow.
Here are six reasons why Dr Pepper will continue to grow even at while at its 52 week high.
1. Market Share, Global Presence, and Brand Saturation
Even though Dr Pepper Snapple Group is the third largest beverage company and the oldest soda brand in America, Dr Pepper has only 16.9% of the carbonated soft drinks market share. It is currently only available in the United States, Mexico, and certain areas of Latin America. But, the company is working to increase its presence on the continent. According to Dr Pepper Snapple Group's latest conference call, the company has increased 18,000 locations that now offer Dr Pepper, including outlets such as Firehouse Subs, Subway, and Jersey Mike's. The potential to continue expanding offers exciting stock price potential for Dr Pepper.
2. Huge Stable Of Great Brands
Dr Pepper Snapple Group's list of beverage brands owned by the company is a who's who of popular drinks. In addition to the company's soda and tea business units, the company also owns the A&W Root Beer, 7UP, Sunkist, Mott's juice, Canada Dry, Hawaiian Punch, and many other brands. In the next quarter, Dr Pepper will conduct a nation-wide launch of its new product Dr Pepper TEN. The company has also been testing more TEN products to increase that selling angle on other soda brands.
3. Cost Savings Are Cutting Millions In Waste
Dr Pepper Snapple Group has dived head first into the continuous improvement. Since Dr Pepper began rapid continuous improvement over a year ago, the company has identified over 160 Kaizen improvements that have saved an annualized $94 million in cash productivity initiatives. Because of continuous improvement initiatives, Dr Pepper Snapple Group has reduced its inventory costs by $58 million lower than at the same time last year. When you compare that on a daily sales basis, that is an improvement of eight days. Because of supply chain related continuous improvements the company has also closed ten warehouses, significantly reduced the amount of miles its trucks drive, and implemented over 500 safety improvements.
4. Dr Pepper versus PepsiCo versus Coca-Cola
When you compare Dr Pepper Snapple Group with its peers, the beverage company's stock looks like it still has some room to grow. With a market capitalization of $9.6 billion, Dr Pepper Snapple Group is considerable smaller than its larger rivals Coca-Cola (KO) and PepsiCo (PEP) and even Monster Beverage (MNST). But, Dr Pepper is larger than others such as National Beverage (FIZZ), Jones Soda (JSDA), and the bottlers. Dr Pepper has a price-to-earnings ratio of 16.37 and a price-to-earnings growth (PEG) ratio of almost 2. Conversely, Coca-Cola has a P/E ratio of 19.03 and Pepsi a P/E ratio of 21.17.
Using this simple metric alone would estimate that Dr Pepper could see an increase in its share price to $53 to earn a P/E ratio of 19 or even $58.59 if it was to have a P/E ratio of 21 like its rival Pepsi. Dr Pepper's 2.98% current dividend yield shows that it is well on its way of modeling itself like its rivals. It already has the same dividend yield rate as PepsiCo and is a little ahead of Coke's 2.55% dividend yield.
5. No European Exposure
Dr Pepper is focused solely on North America, but there are a couple benefits to its isolation. Despite not having the international exposure and growth opportunity that larger beverage companies like Coca-Cola and Pepsi enjoy, Dr Pepper does not have to contend with European crisis either. This is a huge benefit in the short-term, and also provides an excellent expansion opportunity in the future as the company's brands begin to cross the border.
6. Cash Flow Positive Year After Year
Dr Pepper Snapple Group returned approximately $773 million to its shareholders in 2011. That included $522 million in share repurchases and another $251 million in cash dividends. And in 2012, Dr Pepper has already returned $293 million to its shareholders with $152 million in share repurchases and $141 million in dividends in the first half of the year.
Despite Dr Pepper Snapple Group's stock price being at an all-time high, the stock may still have some room to run still. There are many aspects of the company that paint a bright future for the beverage company.
Disclosure: I am long DPS.