Green Mountain Coffee Roasters (GMCR)
By
Timothy Lutts , Chief Investment Strategist and Editor of
Cabot Stock of the Month Report
From Cabot Wealth Advisory, 5/1/09
Sign up for free Cabot Wealth Advisory e-newsletter Green Mountain Coffee Roasters (GMCR) gained 37% yesterday after releasing a dynamite earnings report.
Green Mountain, headquartered in Vermont, has grown its business for every year of the past decade by selling its coffee to distributors for offices, hotels, retailers, department stores and club stores. Today it sells more than 100 varieties of coffee, as well as hot cocoa and tea. Last year, revenues hit $500 million, making the company 5% the size of Starbucks.
Most important, the company has seen no slowdown in its business in the past year. In fact, it's seen acceleration. And the reason is Keurig. If you know it, you understand. And if you don't know it, you will.
Keurig, basically, is a single-serve coffeemaker that uses disposable pre-packed K-Cups. Developed for the commercial market, it's now fast infiltrating the home market.
Interestingly, the name Keurig is derived from the Dutch word for excellence, but the company is no more Dutch than Haagen-Dazs is Scandinavian. Keurig was born in Massachusetts and nurtured to maturity by entrepreneur Nicholas Lazaris.
Green Mountain Coffee Roasters bought Keurig in 2006 for about $104 million, and since then the combination of Green Mountain Coffee and Keurig brewing systems has been unstoppable. In the past year, particularly, the global recession has made a home-brewed cup of coffee (made for a lot less than a dollar), a lot more attractive to people than that $4 cup of Starbucks coffee!
I also think the earth-friendly Vermont image is becoming more fashionable now than the slightly passé Seattle image, based on computers and music.
Growth stories like this have been rare in recent months, so investors have been buying GMCR steadily. As a result, it's earned a recommendation in Cabot Top Ten Report four times so far this year, in January, February, March and April.
On these occasions, editor Michael Cintolo wrote, "While Starbucks continues to cut back after years of (over)expansion--another 1,000 workers are rumored to be on the chopping block—little Green Mountain Coffee remains in rapid growth mode. ... An office or consumer that buys a Keurig machine becomes a steady customer, and the resulting boost in business has made Green Mountain a hot item. Strict attention to cost control has also helped the bottom line, resulting in a recession-defying 14% gain in earnings (growth should accelerate from here) on a 56% jump in revenue in Q4. With just 99 institutional investors on board, Green Mountain has enormous room to grow. ... Green Mountain Coffee has a big, mass market story that could take it far... In the fourth quarter, the company shipped a huge 711,000 Keurig brewers, more than double the year-ago figure, while 357 million (!) K-Cup packs were shipped, up 55%. Going forward, the sky's the limit, as most everyone loves their coffee, and having a personal brewer and a choice of dozens of high-quality coffee, tea and cocoa choices makes sense. It's not a highly-liquid stock, but the story is very attractive."
Those buy recommendations were made as the stock worked its way from 40 to 51, giving anyone interested in the stock plenty of time to get on board.
And then yesterday it jumped 37% to 72, when the company thrilled analysts by reporting revenue growth of 60% and earnings growth of 117%.
During the quarter, the company sold 432 million K-Cup portion packs, up 62% over the year-ago quarter. Even better, it sold 479,000 Keurig brewers, up 148% over the year-ago quarter. And all those coffee-makers are now going to need coffee!
Putting icing on the cake, the company announced its coffee and Keurig brewers would now be sold at Wal-Mart, making it a true mass-market product!
So, I think it's a great investment idea, and I don't even drink coffee. But I do buy a lot. In fact, we've had a Keurig coffeemaker in our Cabot office for several years, and everybody loves it.
Our stock of K-Cups currently includes Hazelnut, French Roast, Vermont Country, Rainforest Espresso, Spring Revival, Irish Cream, Colombian La Vereda, French Vanilla and something called Jet Fuel.
I figure we pay about 47 cents per cup and I expect to be buying coffee for a very long time.
Editor's Note: Every week, Cabot Top Ten Editor Michael Cintolo screens the market for the strongest stocks, and then narrows them down to those with the biggest potential. He gives each stock a buy range, tells subscribers why the stock is strong, and provides follow-ups in every issue; he even highlights one stock each week as his Editor's Choice.
In Mike's words, "Cabot Top Ten Report is guaranteed to highlight not a few, not some, but all of the leaders of every market cycle, because we screen for where the big money is flowing." If you're tired of buying second-rate stocks and want to know what the real leaders are, you should try a no-risk trial to Cabot Top Ten Report today.
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