U.S. Markets open in 7 hrs 50 mins

Jefferies Diagnoses Dr Pepper With A Buy Rating

Elizabeth Balboa

Bolstered by a U.S.-centric strategy, stability in its base business and the continued trending of its Bai brand, Dr Pepper Snapple Group Inc. (NYSE: DPS) earned an upgrade Friday from Jefferies, which issued a Buy rating and bullish outlook on the stock.

Jefferies believes the investment one of low risk and high reward, especially in light of recent underperformance and anticipated increases in consensus estimates.

Buy For Bai

Dr Pepper Snapple acquired Bai Brands in January for $1.7 billion, and the purchase lent the shaken soda company a huge boost.

Taking into account consumer shifts toward healthy beverages, Jefferies analysts said Bai’s growth capacity, estimated at 4.5 percent, is yet under-appreciated. They expect the brand to contribute two to three points of core corporate sales growth in the next five years.

Related Link: How Sweet Were The Soda Pop Quarterly Prints?

View more earnings on DPS

The firm predicts that Bai will grow at a 20-percent CAGR through 2022 — more than 5 percentage points higher than consensus — through product line extensions and international expansion.

Estimates Pop

Largely inspired by positive Bai outlook, Jefferies expects 5.5 percent annual organic sales growth across the company — a figure 2.5 percentage points ahead of consensus and 3 points ahead of guidance.

It elevated 2017 EPS estimates to $4.70 with at least one to two points of upside, although the figure does not reflect anticipated sales loss among Mexican consumers deterred by the nation’s soda tax.

Risks to the thesis include sugar taxes, macroeconomic trends and unexpected deceleration in bai sales.

Jefferies set a price target of $115, and as of publication, shares were trading around $94.67.

Image Credit: By Renelibrary - Own work, CC BY-SA 3.0, via Wikimedia Commons

Latest Ratings for DPS

Date Firm Action From To
Mar 2017 Jefferies Upgrades Hold Buy
Feb 2017 Credit Suisse Reinstates Outperform
Jan 2017 Barclays Initiates Coverage On Equal-Weight

View More Analyst Ratings for DPS
View the Latest Analyst Ratings

See more from Benzinga

© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.