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Food Processing Stocks

Dr Pepper Snapple Group Inc Valuation – May 2018 $DPS

Company Profile (excerpt from Reuters): Dr Pepper Snapple Group, Inc., incorporated on October 24, 2007, is an integrated brand owner, manufacturer and distributor of non-alcoholic beverages in the United States, Mexico and Canada. The Company offers a diverse portfolio of flavored (non-cola) carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including ready-to-drink teas, juices, juice drinks, water and mixers. The Company’s segments include Beverage Concentrates, Packaged Beverages and Latin America Beverages. The Company’s brand portfolio includes CSD brands, such as Dr Pepper, Canada Dry, Penafiel, Squirt, 7UP, Crush, A&W, Sunkist soda and Schweppes, and NCB brands, such as Snapple, Hawaiian Punch, Mott’s and Clamato. As of December 31, 2016, the Company operated 23 manufacturing facilities across the United States and Mexico. The Company also sells its products to distributors in Europe and Asia.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DPS – May 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $21,545,204,739 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.77 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 116.67% Pass
6. Moderate PEmg Ratio PEmg < 20 24.56 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.72 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.77 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -10.94 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.88
MG Growth Estimate 8.61%
MG Value $125.54
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $70.79
MG Value based on 0% Growth $41.50
Market Implied Growth Rate 8.03%
Current Price $119.92
% of Intrinsic Value 95.52%

Dr Pepper Snapple Group Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.1 in 2014 to an estimated $4.88 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 8.03% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Dr Pepper Snapple Group Inc. revealed the company was trading above its Graham Number of $38.81. The company pays a dividend of $2.32 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 24.56, which was below the industry average of 31.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-35.66.

Dr Pepper Snapple Group Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$35.66
Graham Number $38.81
PEmg 24.56
Current Ratio 0.77
PB Ratio 8.72
Current Dividend $2.32
Dividend Yield 1.93%
Number of Consecutive Years of Dividend Growth 9

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $1,246,000,000
Total Current Liabilities $1,624,000,000
Long-Term Debt $4,135,000,000
Total Assets $10,179,000,000
Intangible Assets $7,348,000,000
Total Liabilities $7,693,000,000
Shares Outstanding (Diluted Average) 180,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.91
Dec2017 $5.89
Dec2016 $4.54
Dec2015 $3.97
Dec2014 $3.56
Dec2013 $3.05
Dec2012 $2.96
Dec2011 $2.74
Dec2010 $2.17
Dec2009 $2.17
Dec2008 -$1.23
Dec2007 $1.79
Dec2006 $2.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.88
Dec2017 $4.65
Dec2016 $3.89
Dec2015 $3.46
Dec2014 $3.10
Dec2013 $2.79
Dec2012 $2.36
Dec2011 $1.88
Dec2010 $1.43
Dec2009 $1.02
Dec2008 $0.47
Dec2007 $1.13
Dec2006 $0.67

Recommended Reading:

Other ModernGraham posts about the company

Dr Pepper Snapple Group Inc Valuation – January 2017 $DPS
Dr Pepper Snapple Group Inc Analysis – September 2015 Update $DPS
23 Companies to Research This Week – 9/13/14
Dr Pepper Snapple Group Inc. Annual Stock Valuation – 2014 $DPS

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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