Research Points To Starbucks & Green Mountain Tie-Up (SBUX, KFT, GMCR)

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It is no secret that the end of the relationship between Starbucks Corporation (NASDAQ: SBUX) and Kraft Foods Inc. (NYSE: KFT) has been without much love.  In fact, Starbucks wanted out early and the action was enough that contract law and the fight over fault came up.  Starbucks might prefer for everyone to just stop by a Starbucks retail location for their cup of Morning Joe.  It also knows that no matter what it does that people are going to drink coffee at home from their coffee machines.  That being said, Starbucks either has to go it alone or will have to strike a new partnership.  A research note this morning indicates that Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) would make the perfect partner for Starbucks.

A research report from Canaccord Genuity this morning reiterates a Buy rating on Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) and gives a $50 price target.  Scott Van Winkle noted that earnings per share could exceed $1.00 for each 5% market penetration of the household market, and the report noted that 25% household penetration looks achievable.  This comes on the heels of weekend reports that Starbucks has confirmed it is working on a new product for single-serve coffee machines and the indication is that Starbucks will sell brewers in its stores.

The research is not calling for a merger.  A partnership is more likely.  Van Winkle noted, ” We continue to believe that a Starbucks-GMCR partnership will occur and now believe that the new partnership could revolve around the new Keurig brewer technology about to be tested. We view any potential partnership with Starbucks as a significant positive for brewer adoption.”  He also noted, “Our belief has been, and continues to be, that Starbucks coffee will be available for Keurig brewers later this year. A deal is inevitable…”

With Keurig’s install base from Green Mountain Coffee running at about 5 million a year, this pondering seems more than reasonable.  Weekend reports that Starbucks has a its own single-serve Ready Brew coming, and that is actually pressuring Green Mountain shares by about 4% rather than helping.  The research report from this morning offers a differing take on the situation. The current Kraft-Starbucks pact ends on March 1.  Howard Schultz may now believe that the company’s best strategy from a financial reward stance will be to have 100% control and to keep all of the efforts inside the company. Stay tuned.