Option Trade 
Dr Pepper Snapple Group Inc. (NYSE:DPS) Calls 
Tuesday, 16 February, 2016

**OPTION TRADE: Buy the DPS May 2016 95.000 call (DPS160520C00095000) at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

by Ian Harvey

February 16, 2016

Dr Pepper Snapple Group Inc. (NYSE: DPS), a brand owner, manufacturer and distributor of non-alcoholic beverages operating in the United States, Canada and Mexico, is scheduled to report its fourth-quarter results tomorrow, February 17th before markets open. The company will announce its quarterly results before the market opens, with analysts forecasting earnings of $0.98 per share, up from $0.88 during the same period last year.

Dr Pepper Snapple is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings-with the most up-to-date information possible-is a pretty good indicator of some favorable trends underneath the surface for DPS in this report.

The stock is down 4.6% on the year.

Dr Pepper Snapple Group will open at 91.97 on Tuesday. The stock’s 50 day moving average is $91.89 and its 200 day moving average is $86.02. Dr Pepper Snapple Group has a 12-month low of $72.00 and a 12-month high of $95.87. The stock has a market capitalization of $17.37 billion and a price-to-earnings ratio of 24.42.

Dr. Pepper Snapple has a decent track record when it comes to earnings, topping the consensus seven of the last eight quarters. The stock has trended sharply higher since last summer and shares could tick up towards the 52-week high if the company can once again outpace analyst estimates. Coca-Cola (KO) recently reported stronger than expected quarterly numbers, which gave that stock a nice boost, and could suggest Dr. Pepper Snapple also had a decent quarter.

An institutional investor recently raised its position in Dr Pepper Snapple Group stock. Jennison Associates boosted its stake in shares of Dr Pepper Snapple Group Inc. (NYSE:DPS) by 3.4% during the third quarter, according to its most recent Form 13F filing with the Securities and Exchange Commission. The fund owned 33,523 shares of the company’s stock after buying an additional 1,101 shares during the period. Jennison Associates’ holdings in Dr Pepper Snapple Group were worth $2,650,000 as of its most recent filing with the SEC.

Dr Pepper Snapple Group Inc. (NYSE:DPS) has earned a “BBB+” credit rating from Morningstar. The research firm’s “BBB+” rating indicates that the company is a moderate default risk. They also gave their stock a one star rating.

A number of other analysts have also recently weighed in on DPS. BMO Capital Markets raised their price target on shares of Dr Pepper Snapple Group from $90.00 to $92.00 in a report on Wednesday, January 27th. Vetr upgraded shares of Dr Pepper Snapple Group from a “sell” rating to a “hold” rating and set an $88.09 price target on the stock in a report on Monday, December 7th. Susquehanna raised their price target on shares of Dr Pepper Snapple Group from $87.00 to $92.00 in a report on Friday, February 5th.

Harvey’s Options Volatility Indicator

Conclusion

Since DPS has a P/E of 24.42, there is still plenty of upside potential should the quarterly numbers come in better than expected. The company has been enjoying better earnings growth than both Coca-Cola and Pepsi (PEP), which is a primary reason why the market has been so bullish on the stock over the last several years. Expect another solid quarterly report, and the stock to trend higher on the news.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the DPS May 2016 95.000 call (DPS160520C00095000) at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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