Dr. Pepper Snapple and the Competition
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dr. Pepper Snapple (NYSE: DPS) has maintained a commendable financial and market performance in the past. However, whether Dr. Pepper Snapple will continue to follow the upward trend depends upon multiple factors. Some of the most important factors include: the competition faced by the company, the pace of growth in the business of the company, and the effectiveness of the expansion strategy of the company.
The biggest competitors of Dr. Pepper Snapple are: PepsiCo (NYSE: PEP) and Coca Cola (NYSE: KO). DPS is the third largest beverage company in North America after Coca-Cola and Pepsi. In carbonated soft drinks (CSD) industry, Coca-Cola has been leading the market by a significant margin, followed by Pepsi and DPS. Coca-Cola’s market share is 41.9%, while Pepsi and DPS hold 28.5% and 16.7% respectively. Although there is a considerable difference between the market share, each of these companies has been striving to maintain or enhance its market share. The main tool used by the companies to maintain their market shares is aggressive marketing of their products.
Marketing Campaigns in CSD Industry
In an attempt to capture larger market shares, the three major companies in the CSD industry are trying to introduce the most attractive marketing campaign. All three of them have announced innovative plans for marketing.
Coca-Cola intends to highlight the obesity issue in an attempt to advertise its low-calorie drinks. In the run-up to this year’s Super Bowl, Coca-Cola will run a marketing campaign promoting the company’s low-calorie beverages and highlighting the fact that consumption of a large amount of calories leads to obesity. There are a number of implications to this marketing campaign. This campaign is, in a way, not favorable to the beverages with a regular amount of calories. Contrarily, this campaign will increase Coca Cola’s goodwill among consumers and it will also deflect some regulatory pressure off the company, and the industry as a whole.
Pepsi has announced its plans for launching a new ad campaign with the theme “Love every sip” which starts from January. Pepsi finalized a global partnership with globally known celebrity, Beyonce. The deal is worth around $50 million. Other ads from Pepsi have included celebrities like Lionel Messi, Nicki Minaj, and Drew Brees.
Dr. Pepper Snapple has no plans to let aggressive marketing from its competitors influence its market share; therefore the company is about to launch its latest ad campaign called “one of one.” The ad campaign will feature real people with real stories.
Thus, it is evident from these marketing campaigns that each of the major beverage companies is trying to introduce the most effective and innovative campaign. In such a strong competitive environment, it may be hard for Dr. Pepper Snapple to increase its market share, but there is no reason to believe that the company’s market share is threatened in any manner.
The market performance of Dr. Pepper Snapple has been commendable in the recent past. The share price of the company has followed a stable upward trend over the past year. However, some of the analysts are of the view that the stock of the company may be overvalued if any further enhancement in the stock price takes place. This is the reason why the analysts at Sanford C. Bernstein downgraded Dr. Pepper Snapple from an “outperform” rating to “market perform” rating along with bringing its target price down from $50 to $49. The analysts at Zacks and JPMorgan Chase have a target price of $47 for the company’s shares. The following chart represents the trend for the company’s stock over the past year.
The favorable trend for Dr. Pepper Snapple’s share price can be observed from the chart; however, with the risk of the stock being overvalued, there is a possibility that the share price may revert back or stay at this level in the foreseeable future.
The financial performance of Dr. Pepper Snapple Group has been favorable as per the last announced earnings results of the company. DPS reported $0.84 earnings per share for the quarter ended 29 September 2012, which was higher than the analysts’ estimate of $0.77.
Following the analysis of the extent of competition in the industry in which DPS operates and its market performance, in my opinion, investors should hold their investments in the company. The rationalization behind this recommendation is that buying the shares at this point may be a risky decision as there is a possibility of the stock price reverting back from its peak. However, selling may not be a favorable decision as the prospective financial position of the company is promising.
muhammadbazil has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!