The company also announced a dividend increase of 12% in the Q4 report, which is the fifth increase since they went public. The stock now pays a quarterly dividend of $0.38. The dividend yield of 3.5% is above Coca Cola’s 2.9% and Pepsi’s 2.8%. Dividends have been increasing steadily for the last 3 years, and percentage increases have more or less kept pace with the industry.
Looking at the competition, recent earnings do seem a little better, although Dr. Pepper has the substantially higher expected growth rate. Pepsi has been outpacing the industry in terms of EPS growth for at least the last five years, and has beaten estimates since Q3 2011. On the other hand, the expected 3-5 year EPS growth estimate is only 5.7%, which is slightly under the soft drinks industry average of 6.4%. Dr. Pepper Snapple is looking at a 3-5 year estimate of 14.3%, and the 1 year EPS growth rate is also above the industry average. Coca Cola has had a mix of beats and meets in the last few years, but full-year EPS is growing steadily. The company has an expected 3-5 year growth rate of 8.2% and a 1 year growth rate of 6.2%.
So, what’s going on with Dr. Pepper Snapple Group? They are clearly undervalued compared to their main competitors, the industry as well as the broader market. Yet, this valuation does also seem to echo slowing sales due to changing consumer preferences. The company is now trying to turn things around by focusing on lower-calorie alternatives, but it remains to be seen if they can keep up with their larger competitors.
The article Soda’s Underdog Looks Undervalued originally appeared on Fool.com and is written by Daniel James.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.