Green Mountain Coffee Roasters: Grounds for growth
Americans love their coffee — and they love convenience. Those two demands could help Green Mountain Coffee Roasters (Nasdaq:GMCR) turn some well-placed singles into a home run.
Admittedly, investors looking at the stocks of caffeinated beverage companies have had the jitters after Starbucks (Nasdaq:SBUX) suffered bitter aftertaste from an oversaturation of the U.S. market. The company is closing 600 outlets.
Green Mountain Coffee isn’t facing the same troubles. Far from it, the Waterbury, Vt.-based company has continued to report hefty double-digit profit growth, and its fiscal second-quarter results might have jolted investors seeking a safe haven in a squishy stock market to act.
In part it’s because of a line of single-serve coffeemakers that delivers to java junkies what they might judge is a near-perfect cup of coffee.
In 2006, Green Mountain Coffee Roasters celebrated its 25th anniversary by paying $104.3 million for the 65% of Keurig that it didn’t already own. Ten years ago, Green Mountain was an early investor in Keurig (from the Dutch word for “excellence”), and an eight-year courtship turned into a marriage.
Just as the drip coffeemaker replaced the percolator thanks to Joe DiMaggio pitching Mr. Coffee, some industry observers think the single-cup sector is the next big thing. Keurig is the leader in its field, with more than a third of the market share. Slipping a little plastic pod into the patented Keurig brewer delivers a fresh cup of coffee, tea or hot cocoa.
Food-industry analysts feeling burned by the Starbucks phenomenon running out of steam haven’t dragged down Green Mountain Coffee. Of the five analysts tallied by Thomson Reuters, two rate the stock a “strong buy,” with another calling it a “buy;” the other two are at “hold.” The median price target is $46.50.
The 2008 National Coffee Drinking Trends report from the National Coffee Association says 55% of U.S. adults consume coffee daily. Consumers will still ante up when it comes to a good cuppa joe, with daily consumption of gourmet coffee expected to grow to 17% of adults this year, up from 14% in 2007.
Green Mountain Coffee is best known in the northeastern United States, but is gradually increasing its name recognition in roasting, packaging and marketing coffee and other specialty products. The company is a provider to McDonald’s (NYSE:MCD), but it’s the Keurig brewers and K-Cups that could bring Green Mountain to home and office customers.
For the 13 weeks ended March 29, Green Mountain Coffee Roasters reported a 46% jump in net sales to $120.9 million, paced by a 130% increase in shipments of Keurig brewers (193,000), while the Green Mountain Coffee segment sent out 155 million K-Cup portion packs, 68% more than in the same period the year before. Net income shot up 89% to $6 million, or $0.23 a share, from the fiscal 2007 quarter. The operating margin improved to 9.6% from 8.5%.
Shares of Green Mountain Coffee have pulled back since hitting a 52-week high of $44.75 on June 17. Still the stock had climbed rather robustly from a 52-week low of $25 seen on March 10. Shares closed Tuesday at $37.64.
Mitchell Pinheiro, analyst with Janney Montgomery Scott, wrote on July 9 that the share price retrenchment “creates an attractive buying opportunity.” Pinheiro has a “buy” rating on the stock, and boldly wrote that he believes “the stock has the potential to more than double … on a three-year horizon.”
More coffee companies are adopting fair-trade practices, to help raise the wages of workers in the fields where coffee is grown. Green Mountain, under the guidance of founder Bob Stiller, was a pioneer in the movement, and for its March quarter reported that shipments of Fair Trade-certified and -certified organic coffee increased 19%, and accounted for more than a quarter of all coffee shipped. Its brands include Newman’s Own Organics.
Stiller remains chairman of Green Mountain, but handed over the president and chief executive duties in May 2007 to Larry Blanford.
Piper Jaffray analyst Nicole Miller Regan, who has a “buy” rating and $48 price target, wrote last month after Green Mountain appeared at the Piper Jaffray Consumer Conference that she sees strong sales potential by getting its coffee into more U.S. groceries.
Stifel Nicolaus analyst Mark Astrachan, who has the stock at “hold,” increased his earnings expectations for fiscal 2008 and ’09 after second-quarter results were released, noting the expected benefits from the introduction of a smaller, $79 mini-brewer this fall.
After paying the company’s Keurig operations a visit, Scott Van Winkle, Canaccord Adams managing director of equity research, maintained a “buy” rating with a $45 price target. “We continue to believe, with added confidence, that Keurig’s leadership in the one-cup brewing industry will provide significant opportunities for growth and an even higher valuation,” he wrote May 14.
For many, coffee is a must-have beverage, and the potential of Green Mountain Coffee Roasters could make it a must-have stock for small-cap stock portfolios.
Admittedly, investors looking at the stocks of caffeinated beverage companies have had the jitters after Starbucks (Nasdaq:SBUX) suffered bitter aftertaste from an oversaturation of the U.S. market. The company is closing 600 outlets.
Green Mountain Coffee isn’t facing the same troubles. Far from it, the Waterbury, Vt.-based company has continued to report hefty double-digit profit growth, and its fiscal second-quarter results might have jolted investors seeking a safe haven in a squishy stock market to act.
In part it’s because of a line of single-serve coffeemakers that delivers to java junkies what they might judge is a near-perfect cup of coffee.
In 2006, Green Mountain Coffee Roasters celebrated its 25th anniversary by paying $104.3 million for the 65% of Keurig that it didn’t already own. Ten years ago, Green Mountain was an early investor in Keurig (from the Dutch word for “excellence”), and an eight-year courtship turned into a marriage.
Just as the drip coffeemaker replaced the percolator thanks to Joe DiMaggio pitching Mr. Coffee, some industry observers think the single-cup sector is the next big thing. Keurig is the leader in its field, with more than a third of the market share. Slipping a little plastic pod into the patented Keurig brewer delivers a fresh cup of coffee, tea or hot cocoa.
Food-industry analysts feeling burned by the Starbucks phenomenon running out of steam haven’t dragged down Green Mountain Coffee. Of the five analysts tallied by Thomson Reuters, two rate the stock a “strong buy,” with another calling it a “buy;” the other two are at “hold.” The median price target is $46.50.
The 2008 National Coffee Drinking Trends report from the National Coffee Association says 55% of U.S. adults consume coffee daily. Consumers will still ante up when it comes to a good cuppa joe, with daily consumption of gourmet coffee expected to grow to 17% of adults this year, up from 14% in 2007.
Green Mountain Coffee is best known in the northeastern United States, but is gradually increasing its name recognition in roasting, packaging and marketing coffee and other specialty products. The company is a provider to McDonald’s (NYSE:MCD), but it’s the Keurig brewers and K-Cups that could bring Green Mountain to home and office customers.
For the 13 weeks ended March 29, Green Mountain Coffee Roasters reported a 46% jump in net sales to $120.9 million, paced by a 130% increase in shipments of Keurig brewers (193,000), while the Green Mountain Coffee segment sent out 155 million K-Cup portion packs, 68% more than in the same period the year before. Net income shot up 89% to $6 million, or $0.23 a share, from the fiscal 2007 quarter. The operating margin improved to 9.6% from 8.5%.
Shares of Green Mountain Coffee have pulled back since hitting a 52-week high of $44.75 on June 17. Still the stock had climbed rather robustly from a 52-week low of $25 seen on March 10. Shares closed Tuesday at $37.64.
Mitchell Pinheiro, analyst with Janney Montgomery Scott, wrote on July 9 that the share price retrenchment “creates an attractive buying opportunity.” Pinheiro has a “buy” rating on the stock, and boldly wrote that he believes “the stock has the potential to more than double … on a three-year horizon.”
More coffee companies are adopting fair-trade practices, to help raise the wages of workers in the fields where coffee is grown. Green Mountain, under the guidance of founder Bob Stiller, was a pioneer in the movement, and for its March quarter reported that shipments of Fair Trade-certified and -certified organic coffee increased 19%, and accounted for more than a quarter of all coffee shipped. Its brands include Newman’s Own Organics.
Stiller remains chairman of Green Mountain, but handed over the president and chief executive duties in May 2007 to Larry Blanford.
Piper Jaffray analyst Nicole Miller Regan, who has a “buy” rating and $48 price target, wrote last month after Green Mountain appeared at the Piper Jaffray Consumer Conference that she sees strong sales potential by getting its coffee into more U.S. groceries.
Stifel Nicolaus analyst Mark Astrachan, who has the stock at “hold,” increased his earnings expectations for fiscal 2008 and ’09 after second-quarter results were released, noting the expected benefits from the introduction of a smaller, $79 mini-brewer this fall.
After paying the company’s Keurig operations a visit, Scott Van Winkle, Canaccord Adams managing director of equity research, maintained a “buy” rating with a $45 price target. “We continue to believe, with added confidence, that Keurig’s leadership in the one-cup brewing industry will provide significant opportunities for growth and an even higher valuation,” he wrote May 14.
For many, coffee is a must-have beverage, and the potential of Green Mountain Coffee Roasters could make it a must-have stock for small-cap stock portfolios.
About the Author
Contributing author Paul Rolfes is assistant business editor at The Courier-Journal, the largest daily newspaper in Kentucky.
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