Watch Out For This Hot Coffee Stock
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Green Mountain Coffee Roasters (NASDAQ: GMCR) stock has plummeted a lot since bearish presentation by David Einhorn last year. Although his presentation was partly right in which he called the stock over priced, his assertion that company will be doomed post its patent expiry didn't came true. The stock has jumped significantly in the past three month and the brand GMCR continues to enjoy customer loyalty despite increased competition. Green Mountain Coffee Roasters Inc. has been recognized with the title of "Brand of the Year" for its Keurig coffee maker in the 2012 Harris Poll EquiTrend Study. In addition to this, Landor Associates’ annual Breakaway Brands Study ranked the Keurig brand second in the United States with a stupendous 79% growth in brand strength over a three year period from 2008-2011.
The stock of Green Mountain Coffee Roasters jumped ~27% on earnings release which was well ahead of expectations for the fiscal fourth of 2012. Net sales of GMCR were up 33% from the year ago period to $946.7 million. Non-GAAP earnings per share of $0.64 were up 36% year over year and better than the analyst’s estimate of $0.48. The main drivers of earnings were higher adoption of Keurig single cup brewer and favorable early signs of holiday sales trends.
GMCR's partner and yet its competitor Starbucks (NASDAQ: SBUX) has also gained in revenue through the success of GMCR’s K-Cup sales. Starbucks has shipped nearly 500 million K-Cups since its launch in November 2011. It has received positive consumer reaction for this product and is committed for further support along with its newly launched Vue. Also a notable fact is that Starbucks now has a share of 15.6% in the market of premium single-cup coffee from sales of the K-Cups alone, which is double than its 7% market share which they have by their VIA platform. But as against these positive statements which are in favor of GMCR, the introduction of new coffee maker Verismo by Starbucks might pose a threat for the company. Starbucks launched its first ever brewer Verismo with its own pods. Against other brewers, it offers only three selections along with syrups. The limited flavors have been purposefully introduced to maintain the exclusivity of rich and quality coffee. I have also covered Starbucks in detail here.
Coming on to GMCR’s another competitor, Kraft Foods (NASDAQ: KRFT) also has plans for a launch in the coffee pods segment. Kraft will introduce Maxwell House and Gevalia single-serve coffee pods compatible with Keurig brewing systems, which is another potential threat to Green Mountain Coffee Roasters. As these pods are not licensed by Keurig, Green Mountain will not receive any royalty from their sale. It must be noted here that the patent for Green Mountain’s K-cup design has already expired in September 2012, and therefore, Kraft will definitely take advantage of this launch. Kraft also manufactures the Tassimo single-serve coffee system, thus the production of K-cups will give a market coverage to Kraft for both the Tassimo buyers and the Keurig buyers.
With the investor’s perspective, I think GMCR is showing promising growth with new innovative product launches and partnership plans which will attract more consumer attention and drive revenue incrementally.
Addition of Eight O’Clock coffee
Green Mountain Coffee Roasters has entered into a multi-year partnership with the Eight O’Clock Coffee Company owned by Tata Global Beverages. Under this joint agreement, they will make and market Eight O'Clock coffee, Tetley tea, and Good Earth tea in GMCR's Keurig K-Cup and Vue packs. The brand should compete effectively with non-Keurig cup competitors as it is competitively priced as compared to them. Eight O’Clock coffee was named the “Best Buy” for its Columbian Brew by Consumer Reports in 2009. So the new addition will gain retailers’ and consumers’ attention with the combo of these best brands.
Expansion of Keurig Vue Brewing System
GMCR introduced a new brewer called Vue in the first quarter of 2012. It has announced an expansion to the Keurig Vue platform with the addition of Keurig Vue V600 brewer. The premium Vue comes with a customizable technology and offers 50 varieties of tea, coffee and specialty beverages with the convenience of the single cup technology of the Keurig K-cup. GMCR has also launched a commercial version Vue V1200 for small office brewers. The Keurig Vue V1200 works on RFID (radio frequency identification) technology to make the brewing easier and enhance the user experience. The innovative offerings will drive in value proposition benefits delivering the high levels of customer satisfaction.
Partnership with Lavazza Revolutionizes
GMCR announced a partnership with Luigi Lavazza SpA with the introduction of the Keurig Rivo Cappuccino and Latte system. The combined effort of both the companies is marked towards bringing the single cup technology behind the Keurig and the exceptional recipes of premium espresso from Italy’s favorite coffee maker, Lavazza. The purpose is to deliver a delicious mix of cappuccinos and lattes at the touch of a single button.
Concluding the above points, Green Mountain's forward looking strategies are well defined to capture the market attention. The addition of Eight O’Clock coffee and new Vue brewers provides the high quality coffee experience and convenience at the same time. It has teamed up with the best Italian coffee maker to bring up an innovative offering which will lure more consumers and drive in revenue generation. Even after a good appreciation in the stock price, it still offers a good buy point at a forward P/E of 13.19x to cash in for the long haul.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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