GMCR Pitch - Husky Traders

advertisement
Husky Traders
Stock Pitch: GMCR
Nabil Manji
February 26, 2014
Industry Overview
COFFEE!


NA/Europe: Coffee = 1/3 of water consumption
2.25b cups consumed per day worldwide
Size:



~$120b global market
~$15b sold by coffee brewers/retailers
Second most traded commodity behind oil
Sectors:



Brewers/retailers: SBUX, local coffee shop
At Home: Nestle, Folgers (>60% mkt share)
New “Convenient At Home”: Keurig,
Verisimo, Nespresso, etc.
GMCR Company Overview

Founded 1981 as producer, distributor, and retailer
of organic, fair trade, and specialty coffees

Buys from farmers  refines & roasts  sells to
brewers, retail chains, and directly to consumers
In 2006, acquired Keurig
Revolutionized home brewing…





No messy filters
Variety of choices  pleases all
Convenient & fast
No waste
Easy to clean up (no dishes)
Growth Catalysts

Starbucks raising prices  $3-5 per drink unsustainable


Keurig Pods ~$0.25 per drink
Growing health conscience  reversion to drip/black coffee
away from fat, sugary milk-based espresso drinks

Desired convenience without hindrances

Easy expansion  no regulatory hurdles
Sincerest form of flattery is when your
competitors copy you…
Starbucks Verismo
Nespresso
Cuisinart
Basic Financials
Metric (FY 2013)
#
Revenue
$4.36 b
Gross Profit
$1.62b (37.16%)
Net Income
$483m (10.05%)
EPS
$3.16 (38.60% growth YoY)
Dividend
$1.00/yr (0.85% yield)
Technicals v. “Competitors”
Company
GMCR
SBUX
DNKN
Sector
P/E
34.86
545.93
37.93
33.70
Price/Sales
3.97
3.48
7.67
5.07
Beta
0.87
1.26
0.45
0.57
Op. Margin %
(5yr avg.)
18.37%
15.01%
32.94%
18.92%
Dividend Yield
0.85
1.47
1.79
2.29
Forecast Sales
Growth
11.30%
10.90%
7.60%
-
Price to Cash
Flow
23.51
67.00
28.00
25.15
Quick Ratio
1.84
0.95
0.90
0.84
Outlook
Strategic:

Home brewing growing ~5% annually since 2004

Cost- and health-conscious consumers move away from Starbucksesque drinks

Keurig has long-term contracts with many producers (Lavazza,
Dunkin, Tully’s, GMC, etc.)

New partnerships with manufacturers (Cuisinart, etc.)  increase
margins over long-term by focusing on K-pods

Entry into commercial market  prime for disruption

Marketing  customer entrenchment
Operational:

Moving towards asset light structure (outsourcing production to other
manufacturers)

Rapidly increasing size  more power over suppliers
Risks
 Patents expired last year  easy for competitors to copy
 Dependence on suppliers to maintain variety
 Quality concerns over Keurig machines haven’t been satisfactorily
addressed/corrected
 Big price jump after beating 2013 earnings forecasts; maybe we’re
too late & future is already priced in?
Takeaways
Price/Stock:

Based on sales/margin growth expectations, a bargain
compared to competitors & industry/sector

Newly implemented dividend of $1.00/share

Analyst mean/median target: $125.00 (current price = $116)
My Thesis (risky):

Keurig entering more retailers, homes, businesses

Once people own machine  high margin K-cups

Earnings play (announcing May 5)

Most Keurigs sold holiday season  many K-cups will
be sold this quarter for new owners
Download
Related flashcards

Currencies of Africa

22 cards

Currencies of Europe

37 cards

Stock market

31 cards

Dollar

12 cards

Create Flashcards