Talking Numbers

This soft drink company is crushing the rest

This soft drink company is crushing the rest

Shares of Dr Pepper Snapple are trading at their highest levels since the company was spun-off from Cadbury six years ago.

The stock got a 5 percent boost last week after the company reported better-than-expected earnings and raised its year-end outlook. Year-to-date, Dr Pepper Snapple's stock is up 26 percent and since breaking off from Cadbury in 2008, it has more than doubled.

Is Dr Pepper Snapple "just what the Dr ordered" for your portfolio?

"Dr Pepper has done a phenomenal job managing costs," said Nik Modi, managing director at RBC Capital Markets, who covers the stock. "The top line environment has been pretty tough for these guys as the carbonated soft drink category has been pretty weak. But they're really been attacking their cost structure, and that's what's been driving the stock higher."

Investors are looking for U.S.-centric names with earnings visibility and good capital allocation, Modi said. "Dr Pepper is doing that."

Carter Worth, chief market technician at Sterne Agee, agrees with Modi. He believes the key to the stock is that it has outperformed its rivals but not excessively so.

"If one looks at this stock compared to the big two – Pepsi and Coke – since the bull market began, you have something in the order of a double," Worth said. "That brings to question – is it too much? And if one looks on an absolute chart, it's an orderly, 45 degree angle north-by-northeast. Every time it gets a little steep, you get a nice pullback."

What Worth likes most about Dr Pepper Snapple is the lack of analyst enthusiasm for the stock. According to Thomson, 20 analysts cover the stock but only two have either a "buy" or "strong buy" recommendation. Worth said the company nonetheless delivers results.

"There's nothing not to like," Worth said. "Chart-wise, we would say stay long, be long."

Modi explains that other analysts may be missing something with Dr Pepper Snapple. "People have been really focused on the top line," he said. "There's only so much you can cut in terms of costs. At some point, it doesn't become sustainable. So people really have been looking for evidence and signs that a lot of the top line weakness they've seen can be reversed. No one's seeing that yet."

But the company can still continue to cut costs, said Modi. "We're above consensus on earnings because we just think that they can continue to cut the costs," he said. "They have one more quarter of really easy margin cost-compares. And then once again into the fourth quarter, we'll see how much they can do for an encore in terms of the cost structure."

To see the full discussion on Dr Pepper Snapple, with Worth on the technicals and Modi on the fundamentals, watch the above video from CNBC's "Street Signs."

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