Keurig Green Mountain Inc (GMCR) Initiated With “Buy” Rating From Goldman

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Keurig Green Mountain Inc (GMCR) Initiated With “Buy” Rating From Goldman
GMCR Keurig Green Mountain Coffee

Keurig Green Mountain Inc (NASDAQ:GMCR) may be moving into a time of rapid growth over the next few years, according to Goldman Sachs analysts. They’re estimating a compound annual growth rate of 29.6% for the coffee machine maker’s sales and a compound annual growth rate of 23.2% in earnings per share between now and the 2017 fiscal year.

Buy rating on Keurig Green Mountain Inc (NASDAQ:GMCR)

In their report dated Oct. 7, 2014, analysts Judy Hong, Ivan Holman and Freda Zhuo initiated coverage of Keurig Green Mountain with a Buy rating and $166 per share price target. They think the company is transitioning from “a disruptive innovation story focused on single-serve coffee” into a “multi-layered, product cycle-driven growth story.

They expect Keurig to see accelerating sales and earnings per share over the next few years as its Hot system continues to penetrate the markets. In addition, they expect “incremental contribution” from the company’s Cold platform and new opportunities through more channels, new products, and geographical expansion.

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Goldman ahead of consensus on Keurig Green Mountain Inc (NASDAQ:GMCR)

The Goldman Sachs team said that their fiscal 2015 earnings per share estimate is 4.8% higher than the consensus estimate. Also their fiscal 2016 earnings estimate is 20.9% higher than consensus.

They believe the growth of single serve coffee is not even close to being over. In fact, they believe the household penetration of the company’s single serve coffee platform will more than double, hitting 50% by 2020. Currently, penetration is at 23%.

Growth ahead for Keurig Green Mountain Inc (NASDAQ:GMCR)’s Cold platform

The analysts also think Keurig Green Mountain could have even bigger opportunities ahead of it for its Cold platform. In fact, their estimates put the addressable market for the Cold platform at four to five times bigger than the Hot platform.

They did a “proprietary” survey on consumer intent to buy Keurig’s Cold drink system and found that about half of those surveyed said they plan to buy it. The Goldman Sachs team points out that the partnership with The Coca-Cola Company (NYSE:KO) immediately brings popular brands into the system.

Looking ahead

They believe the 2015 fiscal year will be a year of investments for Keurig Green Mountain as the company rolls out its 2.0 and Cold platforms. However, they expect the company’s margins to stabilize in the 2016 and 2017 fiscal years.

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