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Green Mountain’s Business is on Fire

Stock (Symbol) Stock Price

Green Mountain Coffee (GMCR)

$30

Data is as of Expected to Report Sector

August 30, 2010

Nov 8

Food & Beverage

Company Description
Green Mountain Coffee Roasters, Inc., together with its subsidiaries (GMCR, Inc.) is engaged in the specialty coffee and coffee maker businesses. It sells over 200 whole bean and ground coffee selections, cocoa, teas and coffees in K-Cup portion packs, Keurig single-cup brewers, and other accessories. The Company operates in two business segments: Specialty Coffee business unit (SCBU) and Keurig business unit (Keurig). As of November 13, 2009, the Company acquired the Timothy’s World Coffee brand and the licensed Emeril’s brand. In May 2010, Green Mountain Coffee Roasters, Inc. acquired Diedrich Coffee, Inc.
Sharek’s Take
David SharekGreen Mountain Coffee is not done growing. GMCR sold 844,000 Keurig brewers last quarter. The company sold 444,000 brewers in the year-ago quarter. So the number of units sold jumped 91%. This is key to Green Mountain’s growth opportunity because K-Cup sales must follow. Last quarter K-Cup sales rose 90% from a year ago.Growth Opportunity continues to be picture-perfect:

I’m very excited about the growth opportunity Green Mountain has going. The company is rolling like boulder down a hill. Even gross profit margins improved last quarter, helped by recent acquisitions Diedrich and Timothy’s..

One-Year Chart
Looking at the one-year chart, GMCR tried to break out this month but the breakout failed as the market went into a correction. Estimates for the next two quarters show profit growth of 82% and 133% expected — Green Mountain Coffee is on fire.
Profit Growth Earnings Table
Green Mountain’s profits jumped 58% last quarter as sales rose 64%. Brewer sales are growing between 50-100% a quarter. Growth profit margins have increased the past three quarters.
Beat the Street
The company beat by a penny last quarter after only meeting estimates 2QtrsAgo due to recalls of some faulty brewers. The recall issue now seems to be behind the company.
Annual Profit Estimates
Annual Profit Estimates got a boost as management said revenues should climb 45-50% in 2011, compared to analyst estimates of 34%. Wow, revenue growth of 50%? And now profits expected to climb 66%? GMCR is moving like a freight train.
Future Quarters
Profit growth is expected to average 85% during the next four quarters. There are few public companies that are performing as well as GMCR.
Fair Value
I’m guessing GMCR is worth 40 times earnings, but getting a read on what the company is worth is very difficult. There are so many more revenue streams popping up and with Annual Profit Estimates jumping, its hard to get a handle on what this company can make.Green Mountain has its fiscal year end on September 30th. So I looked ahead to 2011 estimates when calculating the current fair value.GMCR, currently $30 a share, is worth $47 in my eyes. The increase in 2012 estimates from $1.18 to $1.50 has put the 2011 fair value at $60 — double today’s price.
Year Profits x P/E = Price Upside/Downside
Today 1.18 x 26 = 30  
2010 Fair Value 1.18 x 40 = 47 36%
2011 Fair Value 1.50 x 40 = 60 100%
Ten-Year Chart
GMCR has corrected. The last correction put a cut into GMCR’s ten-year chart. I think this stock needs to base or build a handle before moving up again. 2010 profits are expected to climb 87%.
Power Ranking Bottom Line
Growth Portfolio

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At 26 times earnings, GCMR has solid upside with 66% profit growth expected in the next fiscal year. There are so many catalysts this company has that growth opportunity is tough to comprehend — Mr. Coffee, Ice Tea, expanding into Canada, espresso maker coming — oh and don’t forget Keurig brewer unit sales grew 91% last quarter.Green Mountain Coffee is the 3th best stock in the 17 stock Growth Portfolio. Apple (AAPL), #1, has enormous growth opportunity and is so due for a run. Express Scripts (ESRX) is #2 as this health care stock gives stability in the current market correction.GMCR is 3rd out of 10 stocks in the Aggressive Growth Portfolio Power Rankings. Here, Baidu.com (BIDU) and Priceline.com (PCLN) provide more punch for more risk tolerant investors.
Aggressive Growth Portfolio

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