Dr Pepper Snapple Downgraded to “Hold” at Deutsche Bank; Valuation Call (DPS)


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Beverage giant Dr Pepper Snapple Group Inc. ( DPS ) on Friday caught a downgrade from analysts at Deutsche Bank on a valuation call.

The firm said it cut its rating on DPS from "Buy" to "Hold," seeing small short-term upside.

A Deutsche analyst commented, "DPS retains good long-term opportunity to expand brand penetration, is aggressively managing costs, and management strongly committed to returning cash. However we are moving to a neutral stance as recent strength brings the stock close to fair value (14.4x, 9x EBITDA), with only 3% upside to $40 target. We now see more exposure to surging commodity prices as 2011 progresses (lowering estimates), category growth is still sluggish, and competitive environment could heat up…We are lowering EPS (2011 from $2.74 to $2.68) on this basis, but it may also hinder top-line growth, arguably the most important stock driver."

Dr Pepper Snapple shares were mostly flat in premarket trading Friday.

The Bottom Line
We have been recommending shares of Dr. Pepper Snapple ( DPS ) since Feb.16, 2011, when the stock was trading at $34. The company has a 2.59% dividend yield, based on last night's closing stock price of $38.66.

Dr Pepper Snapple Group Inc. ( DPS ) is a "Recommended" dividend stock, holding a Dividend.com DARS™ Rating of 3.5 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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