Dr Pepper Reiterated at Neutral

We have maintained our long-term Neutral recommendation on Dr Pepper Snapple Group Inc. (DPS - Analyst Report) with a target price of $39.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

Dr Pepper Snapple is a leading manufacturer and distributor of non-alcoholic beverages in the U.S., Canada and Mexico. Moreover, the company commands a strong portfolio of well-established flagship brands, such as Dr Pepper, Snapple, 7UP, Mott's, Sunkist, A&W, Canada Dry, Schweppes, Hawaiian Punch, Squirt and Peñafiel, offering a strong competitive advantage to the company while strengthening its well-established position in the market.

Moreover, Dr Pepper's second-quarter 2011 earnings of 77 cents per share came in line with the Zacks Consensus Estimate, but jumped 5.4% from the prior-year quarter on the heels of price increases, favorable currency translations and repatriated brands, partially offset by the adverse impact of higher costs. Further, despite inflationary pressure, the company reiterated its fiscal 2011 earnings guidance range of $2.70 to $2.78 per share.

Further, Dr Pepper's 22 manufacturing facilities and over 200 distribution centers are strategically located across North America. Moreover, the company's warehouses are located at or near the bottling plants and have 5,000 trucks for transportation purposes. These facilities enable the company to better align its operations with its customers, reduce transportation cost and have better control over the timing and management of new product launches.

Additionally, Dr Pepper is in the midst of its Rapid Continuous Improvement (RCI) program. Therefore, the company has been able to reduce its package changeover time from 87 minutes to 24 minutes at its Aspers plant, reflecting a decline of 72%.

Moreover, Dr Pepper anticipates that the program will lead to a cash productivity of at least $150.0 million through 2013. Further, the program will give more flexibility to its plants to meet consumer demand and also enable it to reduce inventory and storage costs.

However, the company's customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels, and high household debt levels, which may negatively impact their discretionary spending, and in turn, the company’s growth and profitability.

In addition, Dr Peppers' financial performance may be substantially affected due to its significant presence in international market (Canada, Mexico and the Caribbean), which exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits.

Above all, the liquid refreshment beverage industry is highly competitive and continues to evolve in response to the changing consumer preferences. Competition is generally based on brand recognition, taste, quality, price, availability, selection and convenience.

The two major and largest competitors in the liquid refreshment beverage market are Coca-Cola Company (KO - Analyst Report) and PepsiCo Inc. (PEP - Analyst Report), each representing more than 30% of the U.S. liquid refreshment beverage market by volume.

Read the full analyst report on DPS

Read the full analyst report on KO

Read the full analyst report on PEP