GMCR: Still Percolating, Analyst Says

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Forbes.com, Fall, 2011. This article was placed on behalf of the U.S. based equity research effort of institutional broker and investment bank Canaccord Genuity. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and approximately 100 million page views a month.

Canaccord consumer analyst Scott Van Winkle maintained his BUY rating and $120 price target on Green Mountain Coffee Roasters despite growing competition in the form of Rogers Family Company’s plan to offer coffee portion packs for use in Keurig brewers. Mr. Van Winkle said:

“The reality is that this isn’t the first attempt to market a K-cup-like portion pack for Keurig brewers by a third party unrelated to GMCR, nor is it the last . . .The availability of San Francisco Bay OneCups and others that will certainly be coming won’t change the game in the US coffee industry. The major brands will continue to dominate and GMCR, contrary to some beliefs, doesn’t defend itself with intellectual property anymore, but rather its partnerships with the coffee brands that dominate the industry at grocery.”

He added, “The world of coffee brewing is changing at home and we believe the [single serve brewer] penetration won’t be a modest 20% or 25% of homes, as some assert, but 40% or 50% at a minimum . . .The real risk could materialize if Green Mountain and Keurig fail to stay ahead of the game on innovations in both its brewers and K-cups. Thus far, the company is delivering on the value proposition to partner brands that we believe are the foundation of its success. “