The stock price of Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) surged by more than 6 percent to $29.03 per share during the midday trading on Tuesday after analysts released their positive comments regarding Brian Kelly as the new chief executive officer (CEO) of the company.
Kelley is a former executive of The Coca-Cola Company (NYSE:KO). He will replace Green Mountains current CEO Larry Blanford on December 3.
Mark Astrachan and Edward McPike, analysts at Stifel Nicolaus, view the appointment of Kelley as favorable for Green Mountain because he has the capability to fix the weak operations of Green Mountain. According to them, the company has the opportunity to improve its supply chain and capacity utilization rates, citing Green Mountain’s plan to invest an additional $600 million in its facilities.
Astrachan and McPike also believed that Kelley might replace some of the senior executives in the company, which they think is also positive for the company. They estimated that Kelley will receive $11 million in total compensation as CEO of Green Mountain.
In a research note to investors, the analysts wrote, “We are more constructive on Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) shares, but believe considerable challenges await Mr. Kelley. These include but are not limited to increased K-Cup competition and category promotional activity, share loss for Green Mountai’s wholly-owned brands, and lack of success of Keurig Vue.”
On the other hand, Bryan Spillane, research analyst at Bank of America Merril Lynch observed that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)'s succession is clear and positive. According to him, Kelley’s general management experience would help the company build its initiatives in evolving its product, supply chain, sales, and marketing.
Bryan notes the following three important outcomes of the new CEO appointment: 1) Clarity on the succession plan is a positive, given the changes that have occurred at the board level and Mr. Blanford’s announcement to retire back in February; 2) Mr. Kelley’s diverse general management experience should help GMCR build upon the work it has done evolving its product, supply chain and sales/marketing; 3) Mr. Kelley was most recently at KO, where he ran the integration of the CCE North America territories and was recently promoted to head Coca Cola North America.
Spillane told investors, “We raise our PO to $30 due to our expectation that clarity on a succession plan will provide a level of support for the stock. Our price objective of $30 implies a P/E multiple of 12.2x, our FY 2013 EPS of $2.45, a 20% discount to the mature packaged food companies, driven by uncertainty surrounding patent expirations, potential new entrants into single-serve coffee markets, and overall volatility, due to the evolving nature of the category.
Meanwhile, Bill Chapell, an analyst at SunTrust, described Kelley’s appointment as a new breath of life for Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR). In his research note to investors, he wrote, “New CEO = new lease on life.“Kelley not only brings experience, but also credibility to the Green Mountain story.”
The question is, can a new CEO help the company against competition from Starbucks and others. Also, if David Einhorn is right, there are accounting issues in the company's financial statements.