UPDATE: BMO Capital Markets Initiates Coverage on Dr. Pepper Snapple Group with Market Perform Rating, $48 PT on Attractive Capital Return Idea

In a report published Wednesday, BMO Capital Markets analyst Amit Sharma initiated coverage on Dr. Pepper Snapple Group (NYSE: DPS) with a Market Perform rating and $48.00 price target.

In the report, BMO Capital Markets noted, “We are initiating coverage of Dr Pepper Snapple Group with a Market Perform rating and price target of $48. DPS stock is an attractive capital return idea as the company likely will return nearly $2 billion to shareholders over the next three years - more than 20% of its current market cap. Given its modest exposure to faster-growing non-carbonated beverage categories and lack of access to emerging markets, instead of futilely chasing top-line growth, the company has fully embraced its capital allocation plan of maximizing returns to shareholders through dividends and share buybacks. We believe that DPS's shareholder-friendly capital allocation is supported by its predictable earnings model and solid cash flow generation. First, DPS's leading share of the growing US flavored carbonated soft drink (CSD) segment and its unique bottling/distribution agreements with both Coca-Cola and PepsiCo partially shield it from heightened competitive dynamics in the CSD segment and create a predictable – albeit relatively modest – earnings growth model. Second, DPS's strong cash flow will be supported by its 100%-plus cash conversion rate reflecting $80-$100 million in working capital, capex, and other capital productivity savings.”

Dr. Pepper Snapple Group closed on Tuesday at $48.28.