Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) shares rose as much as 15 percent in pre-market trading Thursday morning and then kept soaring after opening bell. The company smashed earnings expectations and announced the expansion of its partnership with Starbucks Corporation (NASDAQ:SBUX) this week.
This morning analysts Scott Van Winkle and Mark Sigal at Canaccord Genuity issued an updated report to investors. They upgraded the stock less than a month ago, and now they’re not only reiterating their buy rating but also raising their price target on the stock from $65 per share to $73 per share. They also raised their fiscal 2013 earnings per share estimate to $3.15 from $2.80 per share and their fiscal 2014 estimate to $3.49 from $3.25 per share.
Green Mountain Coffee’s ‘Long Strange Trip’
Van Winkle and Sigal borrowed a phrase from Grateful Dead for their investors’ note this morning, calling Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s last 12 months a “long strange trip.” They note that one year ago yesterday, the stock was worth less than $25 per share after a quarterly report that was so weak “even the most bullish” were shaken.
One year later, the stock hit $69 per share after a second quarter that was so strong no one could have predicted it. The dual announcement of the expanded partnership with Starbucks Corporation (NASDAQ:SBUX) and Green Mountain Coffee’s blow-out second quarter results pushed the company’s stock over $70 per share today. And when you add in the company’s stellar gross margins, you simply have a company with few problems in the near term.
Gross Margins For Green Mountain Coffee
In their report, Van Winkle and Sigal said that Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s “gross margin was so strong that it overshadows a revenue guidance reduction” and a lower-than-expected K-cup shipment. The company’s high gross margin is where most of the earnings surprise comes from. It also shows how concerns about increased competition dragging prices down were overblown.
Canaccord Genuity analysts believe the company’s gross margins will stay strong and probably even strengthen in the near term. They said the company is also improving efficiency and execution and also piling up the cash flow while making net debt disappear.
The Partnership With Starbucks
As mentioned already, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s partnership with Starbucks Corporation (NASDAQ:SBUX) is also growing, as the company announced both an extension and an expansion. It enables Starbucks to triple its offering of Keurig system brands and add others like Teavana and Seattle’s best in both K-cups and Vue-cups.
The deal also brings Keurig brewer sales to Starbucks locations, and Starbucks will market the items outside of North America. This gives Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) an opportunity to go international. The extended partnership is now five years.