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Thursday August 05, 2010
Green Mountain (GMCR): 'True mass market'
by Mike Cintolo, editor Cabot Top Ten Weekly  Green Mountain Coffee (GMCR) has a classic razor and razor blade business. It is involved in a true mass market that the firm is penetrating rapidly. And if management makes the right moves, it could go far. The razor part of the story is Green Mountain’s Keurig single-serve brewers, which offer consumers a quality cup of coffee at a price far cheaper than picking one up at Starbucks. 
The company offers great variety (there are dozens of coffees, teas and cocoas to choose from, including newer iced teas and iced coffees) and convenience. The razor blade part of the story are those coffees, teas and cocoas—known as K-Cups—which Green Mountain sells for use in the Keurig machines. It sells its Keurig brewers at cost to boost its installed base, a strategy that’s working spectacularly. Brewer sales totaled 846,000 in the second quarter, while the fi rm sold a whopping 683 million K-Cups. And that helped overall sales to surge 64% and earnings per share to leap 59%. Moreover, management raised 2011 earnings estimates by 15% to 20%. GMCR was one of the bigger winners during the first year of the bull market—it moved to new highs just a couple of weeks after the market bottomed in March 2009, and didn’t stop going until the end of March of this year. The stock had a deep 35% correction, but has been advancing nicely since early-June, including a strong move up last week following its earnings report. We think you could buy a little around here or on minor weakness, with the idea of adding shares on a strong-volume move above 33. Learn more about this financial newsletter at Mike Cintolo's Cabot Top Ten Weekly. |
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