Time To Make An Appointment With Dr. Pepper Snapple?

By Glenn Curtis | September 11, 2009 AAA

There are a number of high profile publicly traded companies in the food and beverage arena that I think could be big winners in the years to come and Dr Pepper Snapple Group (NYSE:DPS) is somewhere near the top of my list.

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Possibility for Improving Sales
I'm very intrigued with the soft drink and beverage business right now because in an improving economy the average person is going to be spending money on themselves and on things that give them personal enjoyment. Consumers won't immediately spend on high-priced goods, but will instead spend on affordable things like a night out at a restaurant or stocking up their refrigerator with their favorite beverage.

Solid Outlook
Beyond that larger picture view, I'm taken in by the earnings potential of DPS. As things stand now, DPS is expected to earn $1.96 a share this year and $2.13 per share next year, which implies an expected growth rate of approximately 8.7%; this is admirable for a company of its large size. The company is expected to turn in a little more than $5.5 billion in sales in 2009. It also trades at about 12.8 times the current 2010 estimate, which is quite reasonable.

Interestingly, earlier in the week, the company disseminated a release saying that the DPS president will re-confirm the 2009 guidance, and that the company expects net sales to be up 2-4% and earnings per share, excluding certain items, to be $1.88-1.96.

My feel is that management's expectations may be conservative. I'd note that DPS has exceeded the Street's expectations the last three quarters straight. I'm also seeing that the estimate for this year has gone from $1.77 to $1.96 in the last 30 days, which is encouraging.

Other Tasty Food and Beverage Companies
Surveying the scene, it's hard not to like Pepsi's (NYSE:PEP) chances going forward. It has great brands and is well entrenched in supermarkets and restaurants. If one thinks the economy will bounce back and flourish long-term, it makes sense to get on board with Pepsi. Additionally, Coca Cola (NYSE:KO) has an awesome presence and trades at 15 times the 2010 estimate (of $3.30), which isn't extremely cheap, but not unreasonable for a company of its reach, size and future potential.

On the food side of the equation, Kraft (NYSE:KFT) is a company I like. I think its got superb growth potential in the U.S. and throughout the world. KFT trades at 13 times this year's estimate and is expected to grow steadily. The estimate for this year is $1.96 and for next year it's $2.14.

Bottom Line
I like Dr. Pepper Snapple's chances. Its low price-to-expected earnings multiple is a plus, and so is the fact that the estimate for this year has inched up. I think the shares could trade into the mid to high $30s within the next year. (For another take, see Analyst Forecasts Spell Disaster For Some Stocks.)

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