Green Mountain Coffee Roasters (GMCR) was a pretty hot stock for years, though its growth trajectory has slowed down recently. In fact, over the past two years, the company has seen a gain of just 16% as competition has really knocked this stock down a peg.
However, investors have started to see a turnaround lately, as the company has seen a series of earnings beats, and a strong stock performance. Shares are up more than 28% in the past 90 days while the previous quarter saw a beat of 20% on the earnings front. This recent surge really put pressure on GMCR to deliver this earnings season and to keep up the strong momentum.
GMCR in Focus
Green Mountain didn’t disappoint, as the company beat estimates, and crushed comparisons to the year ago time frame. The company also saw revenues ahead of the year-ago period, though actual revenues for the quarter missed estimates.
While GMCR saw solid earnings, the real news on the day was the company’s tie up with Coca-Cola (KO). The beverage giant agreed to take a 10% stake in Green Mountain, while it will also work with the company in order to develop its Keurig Cold at-home beverage system.
This partnership looks to work well for both companies, as it will help GMCR to expand its cold beverage lineup, and it will also allow Coca-Cola to get into this growing segment too. However, it could be downright terrible for SodaStream (SODA) as the at-home carbonated beverage company could have some serious competition in the near future.
Investors pushed SODA down close to 10% after-hours on the news, keeping this Zacks Rank #5 (Strong Sell) company in the doldrums. However, shares in GMCR spiked after hours on the news of the Coca-Cola partnership with a gain of about 35%, while KO shares added roughly 1% in the after hours session too.
Impact
Clearly, investors like the move from GMCR to partner with KO on this cold-beverage system. While this might take a while to bring to fruition, Coca-Cola K-cups could really help drive GMCR earnings and open up a fresh market for KO as well.
The move might also help GMCR, a Zacks Rank #2 (Buy) stock, to see an increase in earnings estimates for future years, as analysts might want to increase their estimates following this bold move. Recently, estimates had been trending lower for the next year time frame before this announcement, though this looks to change now, and could help GMCR to stay in ‘Buy’ territory.
Bottom Line
The move to partner with Coca-Cola does come at a cost, as KO will be acquiring over 16 million newly issued shares at just under $75/share. This will obviously have a bit of a dilutive effect on GMCR, though analysts and investors don’t seem to be focusing on in this just yet.
Instead, it appears as though the idea of single-serve Coca-Cola is dominating the headlines, and is breathing new life into GMCR shares. If we can see ‘pod-based’ Coca-Cola in 2015, as the companies are promising, it could really open up GMCR’s business, and help put this company back on a solid growth trajectory, much to the chagrin of SodaStream investors who look to be in even more trouble following this news.
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