On Aug. 12, beverage company Dr Pepper Snapple Group Inc. (NYSE: DPS) announced that it will invest $20 million to purchase an 11.7% ownership stake in premium sport drink maker BA Sports Nutrition, which owns the BODYARMOR SuperDrink premium sports drink brand. Dr Pepper Snapple has distributed BODYARMOR in its network since 2013, according to the company press release. This represents an interesting strategic move on Dr Pepper Snapple’s part. Here’s why.
Dr Pepper Snapple wants to expand the distribution of BODYARMOR in its system. Demand for carbonated sodas has steadily declined for a decade. Realizing this headwind, Dr Pepper Snapple decided to invest in the company that makes BODYARMOR. Dr Pepper Snapple does not want to find itself in a business heading toward the abyss in a couple of decades. So its investment sends a signal to PepsiCo Inc. (NYSE: PEP), which makes Gatorade, and Coca-Cola Co. (NYSE: KO), which makes Powerade, that Dr Pepper Snapple will not sit still.
BODYARMOR is made up of items that consumers can perceive as healthy, such as “potassium-packed electrolytes, coconut water and vitamins.” However, it also contains pure cane sugar, which can prove hazardous to consumers’ health. Truly health conscious consumers may want to stick with water in the end.
Dr Pepper Snapple already knows the guy, Mike Repole, who founded BA Sports Nutrition, meaning this does not necessarily represent a new venture for the two parties. Repole is a co-founder of Vitaminwater. Vitaminwater expanded a great deal under Dr Pepper Snapple’s “legacy” distribution system. BA Nutrition also touts professional basketball player Kobe Bryant as a significant shareholder, giving the company some public relations punch.
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Dr Pepper Snapple’s press release indicated that this transaction will not materially impact its financial statements. However, over the long term it could prove more integral to its growth strategy as its carbonated soda business continues to face headwinds.
Right now Wall Street feels that Dr Pepper Snapple’s stock price resides at full potential. The consensus mean target price clocks in at $82.53 per share. This represents a less than 1% potential increase from its current stock price as of this writing.
Note that William Bias owns shares in Dr Pepper Snapple Group, Coca-Cola and PepsiCo.
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