Keurig Green Mountain Inc. (NASDAQ: GMCR) has come on the scene as a specialty coffeemaker, and other companies and analysts alike took notice in recent years. After the Coca-Cola Co. (NYSE: KO) stake, there was even more interest. Unfortunately, Keurig Green Mountain has run into some very serious issues ahead of its next growth initiative. The independent research firm Argus has keyed in with some concerns about the company ahead of its KOLD launch, and it sees some big risks ahead.

Argus downgraded Keurig Green Mountain to Hold from Buy on weaker near-term outlook for a few reasons. First, Keurig has posted weak sales so far in the 2015 fiscal year, and the company recently cut its full-year guidance.

Looking forward, Argus expects difficulties with the Keurig 2.0 brewer to hurt sales of beverage pods, and it looks for the company to face pressure from price cuts on the pods that it manufactures for Starbucks and Kraft. At the same time, the firm expects higher coffee costs, spending on the new KOLD brewing system and Keurig 2.0 markdowns to weigh on earnings in the near term.

As a result, Argus lowered its fiscal 2015 earnings per share (EPS) estimate to $3.90 from $4.32 and its fiscal 2016 estimate to $4.40 from $4.95. Keurig appears fairly valued at 22.9 times the fiscal 2015 forecast and at 20.3 times the fiscal 2016 estimate.

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On May 14, Keurig unveiled its Keurig KOLD brewer, which allows users to produce carbonated drinks, juices, waters, sports drinks and teas at home. The new brewer will retail for $299 to $369. The pods will be priced at $0.99 to $1.29 per serving and come in packages of four. The Keurig KOLD is expected to be launched this fall through Keurig.com, followed shortly by sales at a select group of retailers. The system will be offered at more retailers in 2016 and will be available nationwide by Thanksgiving 2016.

On May 6, the company reported fiscal second-quarter net sales of $1.13 billion, up 2% from the prior year, as sales of pods rose 7% to $957 million. However, sales of Keurig brewers fell 23% to $106 million and revenue from “other products and royalties” fell 5% to $64 million.

Excluding foreign exchange headwinds, net sales increased 3%. EPS fell to $1.03 from $1.08 in the second quarter of 2014 and missed the consensus estimate by $0.02. Management’s guidance had called for earnings of $1.00 to $1.05 per share.

Under an accelerated share repurchase agreement and through the open market, the company repurchased 7.0 million shares during the second quarter. It has bought back 25.9 million shares since implementing its repurchase plan.

Argus explained the company’s agreement with Dr Pepper Snapple Group Inc. (NYSE: DPS):

On January 7, Keurig and Dr. Pepper Snapple Group (DPS) announced an agreement to develop DPS brands for use in the upcoming Keurig at-home beverage system. As part of the multiyear agreement, Keurig will be the exclusive producer of single-serve carbonated Dr. Pepper Snapple Group brands for the Keurig KOLD system in Canada and the United States. For all of fiscal 2014, revenue rose 8% to $4.7 billion and adjusted earnings grew 16% to $3.93 per share. Strong sales of KCups, offset in part by lower brewer sales, drove revenue and earnings growth.

During the third quarter of fiscal 2014, Keurig issued 16.7 million shares as part of its transaction with Coca-Cola and another 1.4 million shares to a foreign investor. Keurig and Coca-Cola have signed a 10-year agreement to design and develop Coca-Cola products for use in the company’s carbonated beverage system. On February 27, Coca-Cola paid $1.25 billion to acquire a 10% equity stake in Keurig.

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In the report, Argus detailed its earnings and growth analysis:

Management expects revenue to be flat to up in the low single digits in FY15, down from its prior forecast of mid- to high single-digit growth. It also looks for earnings to decline in the mid-single digits, down from its earlier forecast of mid-single digit growth. Its current EPS forecast assumes a $0.14 foreign exchange headwind and a full-year tax rate of 34.5%. We are lowering our FY15 EPS estimate from $4.32 to $3.90 and our FY16 estimate from $4.95 to $4.40. We now expect FY15 revenue to increase to $4.8 billion, below our prior estimate of $5.2 billion, but up modestly from FY14. Our sales and earnings estimates assume increased pod volumes, offset in part by lower sales of brewers and other products, and lower royalty income. Our five year EPS growth rate forecast remains 20%.

In February 2015, Keurig raised its quarterly dividend by 15% to $0.2875, or $1.15 annually, for a yield of about 1.3%. Argus’s dividend estimates are $1.15 for fiscal 2015 and $1.40 for fiscal 2016.

Argus considers a key risk for Keurig is that earnings growth will fall short of investors’ lofty expectations. Other risks include lower-than-expected Keurig brewer sales, lower usage per brewer and lower margins on K-cup portion packs. The company may also be hurt by the expiration of its numerous packaging and brewing technology patents, as well as by new competition in the single-serve beverage market.

Note that the lowest price target from analysts on this stock was $90, and Argus downgraded Keurig when its shares were in the $80 range.

24/7 Wall St. recently highlighted some of the risks that were facing Keurig Green Mountain going into its KOLD launch.

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Midday on Wednesday, Shares of Keurig were up 0.4% to $89.38, in a 52-week trading range of $88.02 to $158.87. The stock has a consensus analyst price target of $123.17.

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