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Dr Pepper Snapple Group, Inc. (DPS - Analyst Report) recently partnered with the Princeton-based company, Bai Brands, to distribute the latter’s low-sugar, 5-calorie beverage – Bai 5 – in most markets across the country.

Dr Pepper has been distributing the all-natural antioxidant-infused drink in selected markets for the past two years.

We believe the deal will be beneficial for both the companies. Bai Brands will benefit from Dr Pepper’s extensive delivery network and the latter would profit from expanded marketing rights of a popular low-calorie drink.

Dr Pepper’s carbonated soft drinks (CSD) volumes have been sluggish for the past few quarters due to weak category growth. CSDs comprise around 80% of its business. Changing consumer preferences, increasing health consciousness and rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures have tremendously pressurized the CSD category in North America.

To cater to growing health consciousness and increasing obesity concerns, beverage companies are churning out healthier, low-calorie and no-calorie drinks. Dr Pepper has launched 10-calorie versions of its popular CSDs to revive business. Another popular low-calorie drink sold by Dr Pepper is Snapple Diet Half 'n Half. The Bai deal should also help Dr Pepper reap benefits from shift in consumer tastes toward healthier beverage options.

Other Stocks to Consider

Dr Pepper carries a Zacks Rank #3 (Hold). However, beverage companies that are currently doing well include Coca-Cola Amatil Limited (CCLAY), Coca-Cola Enterprises, Inc. (CCE - Analyst Report) and The WhiteWave Foods Company (WWAV - Snapshot Report). While Coca-Cola Amatil carries a Zacks Rank #1 (Strong Buy), WhiteWave Foods and Coca-Cola Enterprises carry a Zacks Rank #2 (Buy).

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