Analyst Boosts Green Mountain Targets After Poor Earnings Reaction

Van Winkle believes that new strategies are coming into focus and he is looking for several years of strong revenue and earnings growth from rising penetration of Keurig single-cup coffee makers in North American households. He called the earnings report one with strong upside to his targets and above consensus earnings estimates, but he did note in-line sales and significant margin expansion. Brewer units and sales materially exceeded his own estimates and the outlook is right in line with Van Winkle’s forecast.

K-cup unit sales were basically in-line with his forecast, and the soft revenue was due to an unanticipated product mix shift. The firm believes that Green Mountain’s new CEO has now set the stage for where he will take the company, and the quality of the data provided is expected to continue to increase with better brewer sales and margin growth. With the stock trading under $45 after the report, Green Mountain trades at about 15 times 2013 earnings and 7.5 times expected EBITDA. Van Winkle believes that a 15 P/E ratio is now the base valuation, and he is targeting the $54 objective at about 17.5 times the firm’s 2014 earnings estimate.

For whatever this is worth, Stifel Nicolaus is not expecting forward growth to improve very much.

Green Mountain shares are down 8% at $45.03, and after just over 90 minutes since the open, we have seen more than 8.4 million shares trade hands. The 52-week trading range is $17.11 to $71.15.