Analysts at Canaccord Genuity raised their price target and fiscal 2014 earnings per share (EPS) estimate for Green Mountain Coffee Roasters, Inc (NASDAQ:GMCR) as they anticipate years of strong profit and revenue growth.
Canaccord Genuity analysts Scott Van Winkle and Mark Sigal cited that the expected growth for the coffee company is driven by increasing penetration of the Keurig-single cup coffee maker in the households across North America.
Canaccord Genuity increased its previous price target of $54 per share for shares of Green Mountain Coffee Roasters, Inc (NASDAQ:GMCR) to $65 per share. The stock price of the company is trading around $55.55 per share, down by 1.75 percent on Friday trading around 1:14 in the afternoon in New York.
Winkle and Sigal wrote, “Given the continued favorable trend for green coffee, we have increased our K-cup assumption for 2014, leading to an increase in our EPS estimate to $3.25 from $3.11. We made no changes to our revenue forecast.”
Winkle and Sigal projected that the coffee company’s second quarter financial performance will be in-line or above their estimates, and moderately higher than the consensus.
They noted that K-cup shipments of Starbucks Corporation (NASDAQ:SBUX) for the second quarter were approximately 175 million, flat compared with its shipments in the first quarter.
Winkle and Sigal emphasized, “Even if Starbucks’ share of shipments jumped from 7.4 percent last quarter to 8 percent this quarter, GMCR should meet our K-cup forecast and we do not expect incremental margin pressure, rather potential margin improvements with green coffee tailwinds.
The analysts noted that Brian Kelley, the new CEO of Green Mountain Coffee Roasters, Inc (NASDAQ:GMCR) made a mark on strategy and sentiment as the single cup continues to grow. According to them, they remain comfortable with their expectation that coffee company’s shipments will be in the range of 9 million to 10 million this year, which would lead to a significant household penetration.
They express confidence that Green Mountain Coffee Roasters, Inc (NASDAQ:GMCR)’s margin will be favorable with relatively firm retail pricing despite competition and declining input costs. Winkle and Sigal believe that the coffee company could implement a price reduction anytime and still hold margins given the existing commodity environment, wherein green coffee prices declined by more than 50 percent from its highest levels.
According to them, their only concern is whether K-cup shipment growth would be sufficient to deliver a 15 percent to 20 percent revenue growth while GMCR’s sales are just growing moderately.