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Dr. Pepper Snapple's Strong Earnings Drown Out the Bears

DPS' fourth-quarter earnings easily bested analysts' forecast

by 2/15/2012 1:50:56 PM
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Adding to the long line of companies that have already unveiled their quarterly results, Dr. Pepper Snapple Group, Inc. (DPS - 40.13) stepped into the earnings confessional before the market opened this morning. DPS posted fourth-quarter earnings of $166 million, or 77 cents per share, up 48% from last year's earnings of $112 million, or 49 cents per share. Excluding items, earnings rose to 82 cents per share. Meanwhile, net sales inched up 3.5% to $1.46 billion. DPS' results topped Wall Street's forecast for a bottom line of 74 cents per share on $1.45 billion in sales.

For fiscal 2012, the Texas-based business predicts its profit will range between $2.90 and $2.98 per share, while its net sales growth is expected to come in at the low end of its 3% to 5% target range. Analysts are anticipating a per-share profit of $2.91 on revenue growth of 3%.

Traders were pleased by this solid showing, and have pushed DPS up more than 2% so far today. In fact, this uptick has guided the stock into the black for 2012, eclipsing its fractional year-to-date loss. Since climbing into the $41 area in early trading, the shares have pulled back, and are currently trying to find their footing above $40. Should this positive momentum continue, DPS will notch its third daily settlement above this level since mid-July 2011.

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Ahead of earnings, options traders appeared to be exceedingly optimistic toward DPS. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 32.43 calls for every put. This ratio arrives in the 84th percentile of its annual range, signaling that speculators on these exchanges have purchased calls over puts at a much faster clip than usual over the past couple of weeks.

However, there could be a less-than-bullish reason for this call-heavy activity. Short interest on the equity increased 13.2% during the past month. Oftentimes, short traders will buy calls as hedges for their bearish bets -- and this could be what's happening here.

Elsewhere, the stock could enjoy an extended rally, if the earnings beat wins over a few skeptical analysts. Zacks is reporting that 10 out of 13 brokerages maintain a "hold" or worse rating for DPS. Furthermore, Thomson Reuters places the consensus 12-month price target at $40.70, which represents a discount to today's intraday peak of $41.77.

In light of DPS' well-received fundamental performance, a fresh round of upgrades and/or price-target hikes, or a short-squeeze situation, could prompt additional buying pressure for the soft-drinks maker.

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