Enterprising Investor Forum

Why is the Street staying away from Dr Pepper Snapple Group (DPS)? Is this one of those classic misunderstood spin-offs that Peter Lynch always talks about? We definitely think so – this is a great company that holds a number of classic brands like:Dr Pepper, Snapple, 7 UP, Sunkist, A&W, Hawaiian Punch and a lot more.

As most people already noted, when DPS started to trade towards the begging on this month, it presented investors with a big discount to the LBO price. However, the stock still went down; probably due to a lot of the UK based funds that did not want to or could not hold securities traded in the US.

DPS is currently trading at a discount to competitors with a P/E ratio that is one of the lowest among major food and beverage companies. Most analyst value the company above 32 USD per share which represents a premium of about 30% to current prices.

The company is moving in the right direction and despite the weakness in the economy, brands like Dr Pepper, Snapple and A&W will continue to be American classics! And don’t forget Mott’s Apple Juice, Canada Dry, Sunkist, and so on. Furthermore, despite troubles with 7-Up, they are also moving strong with brands like Orangina in Europe and Emerging Markets remain strong.

As Peter Lynch state, Spin-offs often are usually misunderstood and offer great investment opportunity also due to the fact that, once set free, their managers do their best to perform as independent entities!

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