On Jan 14, shares of Dr Pepper Snapple Group Inc. (DPS) reached a 52-week high of $74.87, eventually closing at $74.81. The closing price represents a year-to-date return of around 4.4%.
Shares of the beverage company gained momentum after it announced a multi-year agreement with Keurig Green Mountain Inc. (GMCR) on Jan 7 to make pod-based drinks.
The Keurig Deal
Last week Dr Pepper announced a multi-year agreement with Keurig to exclusively make Dr. Pepper-branded pods which can be brewed in Keurig Green Mountain’s upcoming Cold brewer. The deal will make Keurig Green Mountain the exclusive producer of single-serve, pod-based carbonated beverages under the Dr Pepper brands which can be brewed in the Keurig Cold Brewer.
The Keurig Cold machine, expected to be launched in 2015, will use pods to make sodas, sports drinks and other beverages at the touch of a button.
Per The Wall Street Journal, the cold brewer will be able to serve at least 30 beverage varieties. Post the deal, the coffee company will have two of the three most popular soda brands in its Keurig Cold brewing machine.
Strong Performance in 2014
Dr Pepper had an impressive run in 2014 delivering strong profits in all the three quarters reported so far. It has delivered positive earnings surprises in the past four quarters with an average beat of 16.53%. This was driven by pricing gains, productivity improvements and lower interest expense and taxes.
Moreover, 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.
The share price of this Zacks Rank #3 (Hold) company soared 54.5% in 2014. Dr Pepper has sound long-term fundamentals and a strong position in the flavored CSD market. It is reducing costs and regularly returning cash to shareholders.
Key Picks in the Sector
Dr Pepper carries a Zacks Rank #3 (Hold). Some better-ranked companies in the broader retail space include Brown Shoe Co. (BWS) and Dollar Stores Inc. (DLTR). While Brown Shoe sports a Zacks Rank #1 (Strong Buy), Dollar Stores carries a Zacks Rank # 2 (Buy).
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