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Dr Pepper Snapple Group and Coca-Cola Enterprises; who will win? 0 comments
Although Coca-Cola Enterprises Inc (CCE) has been performing well over the past year, CCE needs to improve on some key aspects to keep up its currently rally and outperform its close competitor Dr Pepper Snapple Group Inc (DPS). Coca-Cola Enterprises Inc and Dr Pepper Snapple Group Inc are very similar due to its similarity in market capitalization, CCE being $13.65 billion and DPS $9.09 billion, and similarity in the regions of distribution; i.e. United States, Canada, and the Caribbean, which makes them a greater threat as opposed to some of CCE’s other competitors. Though CCE has had greater increase in its revenue over the past three years, DPS has seen greater increases in its net income, earnings per share, and in the course of one year, has had a higher return on its stock price.
DPS Stock Price Outperforms CCE
The stock price comparison between the two companies shows that investors are more optimistic about DPS than CCE. Over the course of a year, from May 11, 2009 to March 10, 2010, CCE has had a strong return of 57.96%. A huge reason for the stock price increases was due to a deal between Coca-Cola Company (KO) buying the North America’s operations of CCEs, which resulted in a jump from $19.18 to $25.48 on February 25th intraday, increasing by 32.84%. Though DPS did not experience any major one day surge as CCE did, it still was able to see an increase in stock price over a year going from $20.65 to $36.62, return a bullish 77.33%. Although CCE have been increasing dividends, by a mere penny, which is now .09¢, DPS has the higher dividend yield of 2.62%, with a dividend pay of .15¢.
Is CCE Carrying More Debt Than it Can Handle?
Although CCE may be lacking in other areas, they have a respectable amount of cash on hand. According to Cash Equivalents (CE), CCE is ranked third relative to soft drink companies with highest level of cash. Currently, CCE has cash in hand of $972 million, compared to DPS’s $571 million. But, with all this cash, CCE still has an alarming debt to equity ratio of 18.11 ( looks like we have a little Bear Sterns on our hands lol). This high debt to equity ratio is the main reason I am not too bullish on the stock. This shows, compared to DPS’s 1.75, that although DPS does now have as much cash as CCE, it know how to handle its cash more efficiently, hedge against credit risk, and please its shareholders.
The good thing about these two companies is that, their products are always in need. Everybody always want to drink Coke and, my personal favorite, Dr. Pepper and what do you do when you finish your can of Coke or Dr Pepper, you go and buy another one; this is what drives the soft drink industry and why these two stocks have been strong and are going continue being strong for the next couple of years.
Reason why you should be bullish on DPS is because it has increased net income in year 2009 by 11.67% vs CCE’s 2.81%. Also it earned more per share for investors than CCE, increasing EPS by 11.22% against CCE’s mere .67%. Also DPS has kept a respectable profit margin over the past couple of years, which is key to sustainability of any company. Another key fact is insider trader, recently the CFO of DPS Ellen Martin, just purchased 10,000 of the company’s stock. This is always a good sign because whenever management is buying stock they feel it is undervalued or have great optimism for the coming future.
Although the CCE fundamentals are not in play, the stock is riding purely on momentum because of deals with Coca-Cola Company (KO) and recent Sustainability Summit and Award Ceremony were it won “Supplier of the Year,” which played a role in a 6.27% jump in price between opening and closing of the market on May 27.
CONCLUSION: Strong buy on DPS and Buy on CCE, it will beat its 52-week high within the couple of next months, but use a limit-sell order at about $29.75, easily gaining a 14% return.
Disclosure: no position
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