Green Mountain Coffee Brews Unusual Analyst Upgrade (GMCR, SBUX)

January 15, 2013 by Jon C. Ogg

Coffee spilledArgus may not be a household name for investors looking for traditional Wall Street research calls. The firm dates all the way back to 1934 and it offers unbiased research through brokerage firms. Argus made a research call which will likely be controversial to many investors and short sellers. It raised the rating on the battleground stock Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) to Buy from Hold and assigned a $50 price target objective.

The consensus price target from Wall Street is $45.91 according to Thomson Reuters, and the street-high price target is $56 for this stock. Green Mountain remains heavily shorted as well. The December 31 short interest was 32 million shares. This was down massively from 39.8 million shares short in mid-December and down from the 51.4 million shares short at the near-term short selling peak in mid-November. Still, that is a massive short interest that is ranked as almost 7 days to cover.

In summary, John Staszak of Argus said in his upgrade, “We expect Green Mountain to benefit from a number of recent initiatives, including the introduction of its Keurig Vue Brewer in February 2012 and its March 2012 agreement to manufacture and distribute Starbucks Corporation (NASDAQ: SBUX) branded Vue packs for use in Keurig brewers. Our upgrade also reflects the company’s strong brands and the impact of more favorable coffee prices. Coffee prices are expected to stabilize in 2013 after several years of increases, which should result in higher volumes and earnings for GMCR. We believe that management’s FY13 guidance fails to reflect the full impact of share repurchases, recent strong revenue momentum, and prospects for higher operating margins. As such, we are raising our FY13 EPS estimate from $2.70 to $2.76, above management’s guidance of $2.64 to $2.74. For FY14, we are boosting our estimate from $3.20 to $3.26.”

Staszak also said, “Despite moderating growth, management expects the number of brewers sold to nearly triple over the next three and a half years, and estimates that the market for single-cup brewing equipment could reach 35 million units by 2016. As such, it currently projects 15%-20% long-term revenue growth and mid-teens earnings growth.”

Green Mountain Coffee Roasters is seeing no response to today’s upgrade so far. The stock is down 0.2% at $39.26 and the 52-week trading range is $17.11 to $71.15 with a market cap of $5.8 billion.

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