Keurig Green: Recent Share Price Appreciation May Make Relative Outperformance More Challenging, Says William Blair


On Friday, August 22, Keurig Green Mountain (NASDAQ:GMCR) announced a licensing, manufacturing, and distribution agreement with Kraft Foods (NASDAQ:KRFT) to make the Maxwell House, Gevalia, Yuban, and McCafe brands available as licensed single-serve portion packs for use in the Keurig brewing system.

Following the announcement, William Blair analyst Jon Andersen yesterday maintained an Outperform rating, but with a little hesitation. No price target was given. Andersen noted: “We believe the prospect of quality and consistency, coupled with attractive economics, provided incentives for coffee companies such as Kraft (and others) to partner with Keurig. In addition, these licensed players will benefit from the Keurig innovation stream; that is, new features and functions integrated into the system over time. And at the same time, it strengthens and broadens the appeal of the Keurig platform, which now offers more than 50 brands and 290 beverage varieties.” 

The analyst continued, “Shares trade at about 30 times our revised fiscal 2015 EPS estimate of $4.25. Keurig is the clear leader in single-serve, pod-based segment of the hot beverage market in North America, a position it appears ready to extend with the coming introduction of Keurig 2.0. And with Keurig Cold in development, the company appears poised to accelerate the market development and consumer uptake for similar systems in the cold beverage industry. We believe this creates the potential for above-average earnings growth over time, though recent share price appreciation may make relative outperformance more challenging in the near term.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jon Andersen has a total average return of 22.8% and a 57.1% success rate. Andersen has a 48.2% average return when recommending GMCR, and is ranked #1008 out of 3261 analysts.

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