Stock Valuation: Dr Pepper Snapple Group Inc. (DPS)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
Consumer Defensive – Beverages – Non-Alcoholic – Beverages – Soft Drinks USD120.26
@ 27 Jun 2018
COMPANY PROFILE Dr Pepper Snapple Group Inc manufactures and distributes nonalcoholic beverages in United States, Mexico and the Caribbean, and Canada under various brands such as Dr Pepper, Canada Dry, 7UP, Snapple, Schweppes, Crush, Sunkist, among others.

Dr Pepper Snapple plans to merge with Keurig Green Mountain (which has been held privately by JAB Holding Company since March 2016) in the first half of 2018. Dr Pepper bottles and distributes nonalcoholic beverages in North America, with roughly 90% of revenue generated in the United States. Its portfolio includes the Dr Pepper, Canada Dry, 7UP, A&W, Snapple, Hawaiian Punch, Mott’s, and Bai brands. Keurig specializes in single-serve hot beverages, with brewers in more than 25 million North American homes and offices. Its system includes 75 owned, licensed, and partner brands.

Stock Code DPS
Valuation Analysis Below

Dr Pepper Snapple PE Ratio

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Market Cap/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of USD120.26 as at 27 Jun 2018, Dr Pepper Snapple Group Inc is trading at a PE Ratio of 21.8 times last 12 months earnings.  This is a 9.1% premium to its historical average Price to Earnings Ratio of 20.0 times. (Price based on the historical average PE of the company is indicated by the red line.)
Is the stock overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Price to Sales chart is from ProThinker Stock Report. Company description, historical financial statements data and price data are from Estimates are from gurufocus and/or – Thomson Reuters.
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