The Coca-Cola Company (KO), Dr Pepper Snapple Group Inc. (DPS): Is This Insider Sale at This Beverage Company a Bearish Sign?

Recently, Larry Young, the President and CEO of Dr Pepper Snapple Group Inc. (NYSE:DPS), sold 74,103 shares of the company worth more than $3.5 million. Since the beginning of the year, Dr Pepper Snapple has gained only 7%, under-performing the S&P 500’s gain of nearly 20%. Dr Pepper Snapple does not seem to be expensive at 14.4 times its forward earnings. Is the recent insider sale by the CEO a bearish sign for Dr Pepper Snapple? Let’s take a closer look.

The third-largest player in the CSD market

Dr Pepper Snapple Group Inc. (NYSE:DPS) is considered one of the leading businesses in non-alcoholic beverages in the U.S., Canada, and Mexico with many diverse product brands including Dr Pepper, Canada Dry, 7up, and Schweppes. The company reported that it is the number one flavored carbonated soft drinks (CSD) company in the U.S., with around 83% of its volume from brands which enjoyed the first or second positions in their category.

Dr Pepper Snapple Group Inc. (NYSE:DPS) derived most of its sales, around 89% of the total sales, from the U.S., while its much bigger peers The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) generated most of their sales from outside the U.S. In 2012, Coca-Cola generated more than $19.7 billion, or 41% of its total revenue from the U.S. PepsiCo generated $33.4 billion in the U.S., accounting for around 50.9% of its total 2012 sales. Coca-Cola controls the CSD market with a 42% market share, while PepsiCo ranks second with around 29% market share. Dr Pepper Snapple stays in the third place, accounting for around 16.8% of the market.

In the first half of 2013, Dr Pepper Snapple Group Inc. (NYSE:DPS) reported quite sluggish operating results. Excluding currency effects, its volume experienced a 3% decline while net sales and segment operating profit stayed flat. Year-to-date, its core EPS came in at $1.37 per share. For the full year, the company expects its net sales to increase by around 2%, with the core EPS staying in the range of $3.04 – $3.12, including the negative impact of higher COGS due to packing and ingredient costs.

The cheapest valuation with the highest dividend yield

Dr Pepper Snapple Group Inc. (NYSE:DPS) is the cheapest among the three. The market values the company at 14.4 times its forward earnings. Both The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) have a higher valuation than Dr Pepper Snapple. The market values Coca-Cola at 17.7 times its forward earnings. PepsiCo has a bit higher valuation than Coca-Cola. It is valued at 17.82 times its forward earnings. Income investors would like Dr Pepper Snapple’s juicy dividend yield of 3.30%, with a payout ratio of 46%. Coca-Cola ranks second with 2.80% dividend yield while PepsiCo offers investors a dividend yield of around 2.70%.

Coca-Cola expects to benefit form the large nonalcoholic ready-to-drinks market with 585 million consumers, 37% under the age of 21 and more than 18 million people in the emerging middle class. The company set its 2020 Vision to double its system revenue. Its number of servings is also estimated to grow to more than 3 billion a day, or 3%-4% annual volume growth.