Keurig Green Mountain (GMCR, Financial) reported solid numbers for the recent quarter that topped analysts' expectations, along with year over year growth. Led by it strong performance, the stock has touched a 52-week high, and its strong fundamentals should allow it to carry the same momentum forward. Although there was a minor disappointment on the wake of earnings release, as its first quarter 2015 earnings guidance fell below the consensus, but considering Keurig’s strong fundamentals, it should not be matter of big concern. There’s more to this story but first let’s have a look at its numbers.
Tailwinds to consider
Keurig has various tailwinds that will boost its growth in the days ahead. The company continues to benefit from the launch of Keurig 2.0, which according to management is the largest and most significant product launch it has accomplished till date. This new machine is significant for the company as it will work only with pods that are manufactured by Keurig; a strategy adopted by the company to establish its monopoly in the market.
However, since its launch the company has incorporated various unlicensed pod manufacturing brands into the Keurig system. This will again reduce its competition in the market. Along with this Keurig recently entered into a ten year deal with caribou coffee for the sale, distribution production and marketing Caribou Coffee in Keurig packets . It has also partnered with various retailers such as SUPERVALU, Walmart and others to sell the Keurig system.
These partnerships will significantly increase its top line in the days ahead. The company already has a substantial market share in the coffee segment and now it is eyeing for more. Keurig has decided to launch its home-use, carbonated beverage dispenser to compete with companies such as Sodastream International. The product is expected to be launched during the holiday season next year.
On to its global platform, Keurig launched its hot beverage system in the U.K where it’s joined by Starbucks. This will bring the power and consumer passion for Starbucks brand to its first Keurig launch outside of North America. Also, it has now shifted its coffee buying to Switzerland, which is already home to big commodity merchants. Not only is Switzerland a convenient place for global trade but Keurig will also benefit from its favourable tax regime.
Conclusion
All in all Keurig seems to be on track to achieve year over year growth. Currently it has a trailing P/E of 36.98, but its forward P/E looks even more impressive at 28.76 reflecting significant growth in its earnings. The company had a strong performance during the quarter and considering its leadership in the hot systems we could expect the same momentum in the coming months. The stock rose considerably in the past one year and looking at its future prospects we could see more upside to this stock.
