In a research report published yesterday, Wedbush analyst Philip Terpolilli reiterated a Neutral rating on Keurig Green Mountain Inc (NASDAQ:GMCR) and reduced the price target to $85 (from $100) to better reflect volume trends as well as expected pressure from unlicensed business. However, the new price target represents a potential upside of 22% from where the stock is currently trading.
Terpolilli wrote, “GMCR remains highly sensitive to changes in the price of coffee, as we estimate each 5% move in unhedged coffee costs equates to ~$0.15 in earnings power to GMCR. With coffee costs down 15-25% on average over the last few months, even with reinvestment in pricing and other areas, we expect GMCR could benefit in the $0.15-0.20 range in total in FY16. In total, with falling coffee costs and other factors, we continue to model GMCR returning to earnings growth for the out-year”
Furthermore, “Continued pullback in increasingly out-of-favor GMCR shares is beginning to look overdone in light of the improving coffee cost outlook and ongoing adoption (albeit slowing) of single-serve coffee. However, as outlined in our initiation report, with concerns around Keurig Kold, operating cost spending, and successful entrance of unlicensed competitors into 2.0, we believe the company is unlikely to experience a meaningful earnings growth reacceleration and therefore deserves its current discount to historical averages.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Philip Terpolilli has a total average return of 2.1% and a 64.3% success rate. Terpolilli has a 52.4% average return when recommending GMCR, and is ranked #2092 out of 3702 analysts.