Does Lightning Strike Twice After All?
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Green Mountain Coffee Roasters (NASDAQ: GMCR) has recently surprised everyone with better than expected earnings results. Since then the company's share price has risen significantly to around $40 per share.
However, even at this price it looks affordable with a P/E ratio of just over 17. This makes it cheaper than most of its peers, including Starbucks (NASDAQ: SBUX) with a P/E of slightly higher than 30, and looks like a good investment idea. Let’s look at some more details about why you might want to invest in Green Mountain Coffee Roasters.
Green Mountain announced they will be reporting Q1 performance on Feb. 6, which is now less than one month away. There is one question now bothering many current stock holders, as well as potential investors, is “Are they going to pull it out and deliver better than expected results yet again?”
Argus Research announced they are lifting the rating of Green Mountain to Buy from Hold, as well as pushing the target price to $50. According to Argus, this decision is the result of positive initiatives taken by Green Mountain, which included the introduction of Keurig Vue Brewer and making Starbucks-branded Vue packs for Keurig Vue Brewers.
Competition with Starbucks didn’t really scare many investors on a level that has been predicted in the past. Of course, Starbucks is trying to grab market share of coffee brewer sales in U.S. as well as abroad, but Green Mountain is still a leader in U.S. and will remain so for the foreseeable future. The relationship between these two industry giants should be seen more as a partnership, rather than a competition.
So, 2013 looks like an exciting year for Green Mountain. Rivo, which has been developed together with Lavazza, will shortly be available. It is very exciting, as it will be able to produce high quality coffees at home and will be supported by Lavazza brand. This will be a blow to Strabucks, as Rivo, unlike Verismo, will be able to use any kind of milk you can buy in a supermarket, including soy milk. This is a huge selling point and a win for Rivo.
As the new brewer will be making its way to stores across the U.S. and hopefully internationally, the company will be led by a much different management team. Former Coca-Cola executive Brian Kelly has been in charge since November of 2012 and his experience might benefit Green Mountain in many positive ways.
I would love seeing Green Mountain going global and trying to take market share in Europe. However, this would create a battle with Nespresso, owned by mighty multinational Nestle (NASDAQOTH: NSRGY). Seeing a clash of 2 titans would be interesting, but Nespresso is getting stronger and stronger as we speak ,with more and more amazing stores opening in Europe. This means that if Green Mountain wants to grab market share internationally it has to act quickly and have a plan in place, powered by great marketing.
In terms of figures, in their latest report Green Mountain forecasted a 14%-18% increase in sales for Q1 of 2013 versus Q1 of 2012. It does sound realistic, but also optimistic.
An interesting picture shows up when we look at inventories for financial year 2012 in comparison to 2011. The overall increase of 14% looks alarming, however on closer inspection it is becoming clear that the increase happened because the company was buying more coffee required for production, as well as the increase in brewers and accessories. This is not surprising considering the launch of Keurig Vue and Vue packs.
It's interesting to note that there's been a reduction of single serve packs stock by 30%. This can possibly be a good sign of being able to clear old stock of K-Cups while phasing in new Vue packs required for Vue brewers.
Yet again, looking at the overall picture it looks like Green Mountain is still hot, and lightning might very well strike twice. And as reporting day approaches we will be able to find out very soon if this is, in fact, the case.
Foolioiam has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!