Counter-Argument: DPS waaaay Underpriced?
Ok you got my argument that DPS is waaaaaaaaaay overpriced....
So I guess it might be useful to hear the argument as to DPS at a trading range of $34-36
is actually underpriced...
Now.. I am not pointing to Techies... main reason I am posting up these posts on DPS is well for one thing...( I WAS RIGHT ABOUT FORD!!!!!!) and the 2nd thing is that Analysts consistently refuse to explain their optimism over DPS.... They just point to a Chart with some multi-colored squiggley lines as if that's good enough explaining there.... what the heck???
Not all of us are PSYCHIC here.... we need actual analysis!!!!
So here goes..... Given everything I explained in my previous blog on DPS that investors won't pay any more than 16 times earnings for DPS and that right now $2.30 for 2010 earnings is already priced into the stock......and that dividends + buybacks + cash on balance sheet means nearly nothing when it comes to determining what Multiple Investors are willing to spend money on DPS for...
Given all that I explained before..... Here's a counter argument...
DPS has raised their initial earnings expectations before.... and they can raise them again.
But even still....When it comes to saying DPS should be trading in the MID-40s... you would need Dr. Pepper Snapple Group to lift the top of their range $2.30 per share earnings 2010.....to an expected $2.50. At 16 times earnings....that just gets you to $40.00 even.
But at a $34 handle..... 6 points + dividend is rather nice! Especially when analysts are expecting the dividend to be raised sometime this year / beginning next year.
So you have a stock with 6 points + increased dividend possible if the C.E.O. during conference call thinks the company can pull off $2.50 this year.
But where is the evidence they can do that?
$2.30 assumes a 11-12% increase over the $2.17 they did 2009 ($1.97 not including certain items).
So...we need at least a range of 15% increase in earnings to pull off $2.50 for 2010 or $40.00 a share at 16 P/E.
Is that doable? Consider Dr. Pepper Cherry Superbowl Commercial and at least TWICE in Q1 Varchild found 1 local Walmart with nearly universally sold out DPS products in the SODA Aisle.
Earnings for Q1 have to be breathtakingly good and if they are....then expect the high end of the range to be lifted closer to $2.50....and well...maybe $40.00 isn't so hard a target to reach this year?
Does DPS have a 15% growth rate?