Can Dr Pepper Snapple (DPS) Continue the Earnings Streak? - Analyst Blog
We expect Dr Pepper Snapple Group, Inc.(DPS) to beat expectations when it reports fourth-quarter and full year 2014 results on Feb 12.Last quarter, it posted a positive surprise of 11.4%.
In fact, the beverage company has delivered positive earnings surprises in the trailing four quarters, with an average surprise of 16.53%.
Why a Likely Positive Surprise?
Our proven model shows that Dr Pepper Snapple is likely to beat earnings this quarter because it has the perfect combination of two key ingredients.
Zacks ESP:Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.30%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Dr Pepper Snapple carries a Zacks Rank #2 (Buy) which when combined with a +2.30% ESP makes us confident of an earnings beat.
Note that stocks with Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Factors to Consider
Dr Pepper had an impressive run in 2014 delivering strong profits in all the three quarters reported so far. This was driven by pricing gains, productivity improvements and lower interest expense and taxes.
Dr Pepper raised its earnings outlook twice in 2014 following better-than-expected results. Management also raised its top-line expectations concurrent with the third quarter results driven by better soda volumes. We believe the strong momentum to continue in the fourth quarter as well.
Dr Pepper has been curtailing costs by reducing inventory and storage costs. The company’s cost reduction efforts has also improved cash flows. This allows it to regularly return cash to shareholders through dividends and share buybacks.
On Feb 5, Dr Pepper Snapple announced a dividend hike of 17.1% to 48 cents per share to be paid on Apr 7 to shareholders as of Mar 18. The company also announced an additional $1 billion share buyback program apart from the $3 billion program announced earlier, taking the total repurchase authorization to $4 billion.
Other Stocks to Consider
Here are some other companies in the beverage/food sector that you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Whole Foods Market Inc.(WFM), with an Earnings ESP of +2.22% and a Zacks Rank #2.
Kraft Foods Group Inc.(KRFT), with an Earnings ESP of +1.37% and a Zacks Rank #3 (Hold).
Monster Beverages Inc.(MNST), with an Earnings ESP of +5.09% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
DR PEPPER SNAPL (DPS): Free Stock Analysis Report
MONSTER BEVERAG (MNST): Free Stock Analysis Report
WHOLE FOODS MKT (WFM): Free Stock Analysis Report
KRAFT FOODS GRP (KRFT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
