Why Dr Pepper Snapple Is Having A Big Day

Shares of Dr Pepper Snapple Group Inc. DPS are up Thursday morning. Stifel analysts Mark Swartzberg and Christopher Sinnott upgraded the stock from Hold to Buy, and also set a price target of $90.

According to a report recently published, the upgrade was based on valuation and an improving U.S. outlook, which translates into expected revenue and EPS upside to consensus estimates.

Stifel's revenue estimates for 2015, 2016 and 2017 were increased from $6.227 billion, $6.420 billion, and $6.620 billion, respectively, to $6.286 billion, $6.494 billion, and $6.709 billion.

Related Link: Benzinga's Top Upgrades

EPS estimates for the same period were raised from $3.93, $4.26, and $4.54, respectively, to $4.01, $4.47, and $4.92 (versus consensus of $3.88, $4.14, and $4.42).

The $90 price target reflects a 20.1x multiple to the firm's 2016 EPS estimate of $4.47. The analysts expect Dr Pepper Snapple's multiple to expand "as earnings momentum continues and given DPS's valuation history."

They add:

• "DPS's forward P/E has contracted to the noted 18.6x from 20.3x at yearend 2014. We attribute this mainly to rotation from Staples and expect it to reverse since the interest rate outlook is broadly stable and DPS participates in a stable-to-improving industry."
• "DPS began trading at P/E parity to XLP last summer. We take this as a sign the market is beginning to attach a better outlook to DPS fundamentals."