Alton Stump of Longbow Research upgraded Green Mountain to a buy on Friday on the basis that the company would ship nearly double the number of K-Cups in 2012. Stump, who is ranked #2 among beverage earnings estimators by Forbes, predicts shipments will increase by 89 percent. Stump pointed to current and imminent new product launches with third-parties, including Starbucks (SBUX), and a broader embrace of the K-Cup. Currently Keurigs are most popular in the New England area, but Stump predicts they will gain further ubiquity in other markets. He also mentioned an expanded selection of non-coffee K-Cups as an additional profit driver
The current selection though looks to be suiting consumers tastes just fine or that’s what the 106 percent sales increase during the 12 weeks that ended September 3 would seem to indicate. The massive growth in that short period seems to add credence to Stump’s extremely optimistic outlook. Another recent development, an agreement between Green Mountain and Mr. Coffee owners, Jarden (JAH) further supports the possibility of doubled growth. Beneath the deal, consumers with a Mr. Coffee single cup brewer, which is powered by Keurig technology, will be able to choose from a variety of 200 K-Cups. Mr. Coffee will also debut a multi-reservoir single cup brewer to facilitate simultaneous brewing. The latest design could be a boon to Green Mountain’s sales, as consumers have increasingly less cause for a traditional coffee maker.
As evident with Jarden, other companies within the industry are attempting to profit from the Keurig and K-Cup sensation. Not even Starbucks (SBUX) is immune. The Chicago-based empire announced in September that it would expand its involvement in the single-cup market with its introduction of K-cups, a move that is expected to boost sales.
Beyond its rising zeal for the single cup market, Starbucks is looking to make its mark in India via involvement with the Tata group. Tata is a multi-tiered business with involvement in things from retail to tea and automotives. Starbucks, via Tata is looking to infiltrate these myriad avenues and capitalize on the growing demand for coffee in India. India’s younger generation is leading a rise in consumption in the nation pushing overall domestic consumption of coffee rose to roughly 108,000 metric tons for 2010. That number might not mean much on its own, but government data indicated that’s an 80 percent increase over a ten year period.
An article published on The Street claims Tata Coffee and Starbucks signed an initial agreement for sourcing and roasting premium coffee beans in India in January. The Starbucks are expected to be located in hotels and retailers affiliated with Tata.
Starbucks had success bringing more coffee to China, where it has opened 400 new locations.
These factors are likely to help Starbucks continue to thrive and while the stock reached a new 52-week high on Friday the growth that can be anticipated from the combination of the company’s new tactics and rising cost of coffee may allow to continue to break through barriers.
Green Mountain’s pricing may too be worthy of discussion. The company was considered to be over bought when it was trading in the $120 range but a recent tumble of over 20 percent has put Green Mountain back at reasonable levels. The combination of the price cut and the strong growth outlook will likely help the company push higher in short-term trading.