Soda That Can Make You Rich
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The thing about investing in companies which manufacture and market products which are used on a daily basis, is that the demand for such items hardly dwindles because of macroeconomic concerns. The companies however, face the brunt of global happenings in the form of falling profitability in its operations. For a company that has no business operations in the Europe, such turbulent times could prove to be an opportunity to outperform its peers, which have their presence in Europe. The company that we’re talking about is Dr. Pepper Snapple Group (NYSE: DPS) and its competitors being Coca Cola (NYSE: KO) and PepsiCo (NYSE: PEP).
Dr. Pepper Snapple Group maybe the oldest soda brand in the US, but is positioned third when it comes to market share. In addition to the US, the company has its reach in Mexico, Canada, and India with almost no exposure to Europe. The company recently announced that it has added 18000 outlets of its brands. The company has a tremendous growth opportunity as it is yet to expand unlike its competitors. Additionally since the company has almost no exposure to Europe, this protects the Pepper Snapple from any macroeconomic risks with an epicenter in Europe, again unlike its diversified competitors, PepsiCo and Coca Cola.
The company has a wide range of brands like Snapple, 7up, and Firehouse Subs in its kitty. This diversity of more than 50 brands ensures the stable demand for the company’s products, and less volatility. Dr. Pepper Snapple’s competitors in a bid to spread their risks aimed at geographical diversification, most of which is based in Europe.
Additionally in a bid to cut on its operating expenses, Dr. Pepper Snapple was able to make improvements in its operations which save $94 million annually. The company was able to cut $58 million in inventory expenses in 2012. These cost cuts will eventually reflect on the books of Dr. Pepper Snapple as increased profitability.
The company made it to the Forbes for being one of the top dividend yielding companies experiencing insider buying in the last six months. Insider buying always attracts me as the company’s insiders are the ones that know what is really going on in the company. Also these insiders know when to time their entries, so I prefer going with the insiders. The company was involved in a share repurchase program worth over $522 million. This highlights the amount of faith the management has in the company’s future and its growth prospects.
Dr. Pepper Snapple Group yields 3.09% which is higher than PepsiCo’s 3.05% and Coca Cola’s 2.58% yield.
|
Company |
P/E |
PEG |
EPS growth this yr. |
EPS growth next 5y |
|
Dr Pepper Snapple |
15.8x |
2.03x |
25.88% |
7.8% |
|
Coca Cola |
20.17x |
2.69x |
-27.10% |
7.5% |
|
PepsiCo |
18.54x |
2.94x |
3.04% |
6.38% |
In addition to the dividend yield, Dr. Pepper Snapple Group is fairly priced in comparison to its global competitors. Additionally the company has been the best performer amongst its peers this year, and is likely to be at the top in terms of EPS growth for the next 5 years. Another competitor is Jones Soda, but since the returns of its stock are negative, it hasn't been included in our fundamental comparison.
To sum it all up, the company’s numbers look good, and when coupled with expansion possibilities, the picture turns rosy. The stock of Dr. Pepper Snapple has been outperforming its peers in the current year, and also has the highest dividend yield. The share repurchases and insider buying turn out to be the last nail in the coffin, stamped with our Foolish Buy seal.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.
