What a Quarter for GMCR! Can it be Repeated?

[Stocks-to-Watch]

Green Mountain Coffee Roasters (GMCR) executives are chuckling today, poking each other in the ribs over GMCR-hater David Einhorn’s decision to hold onto his GMCR short position at the end of last quarter. Green Mountain stunned investors late on Wednesday by reporting that sales of K-cups, its single-serve coffee product, more than doubled year over year. And K-Cup brewer sales jumped 81%, well ahead of analysts’ estimates. The stock is up 22% this afternoon.

But who will get the last laugh?

Canaccord Genuity analyst Scott Van Winkle is confident that the volatility around earnings will decrease, a positive change for GMCR. And he notes that brewer sales are a “leading indicator”; presumably more people will now be buying K-Cup coffee packets to put into the brewers they received over the holidays.

“The question now is when the quarterly volatility will settle down. Of the last three quarters, two delivered substantial upside, one had a significant shortfall and it appears that the Q1 results pulled forward some sales from Q2. At the current valuation, we believe that the volatility is well discounted into the shares, but we admit that our forecasting has become more challenging. Our suspicion is that GMCR has caught up to demand with its aggressive capacity expansion and higher levels of capacity and inventory on hand are leading to a normalization of channel pull-through that has created some short-term volatility in the quarterly growth rates. For example, we measured higher inventory pre-holiday and post- holiday at retail, while the previous year the post-holiday inventory was massively depleted.”

Of course, there are still numerous reasons to be wary of the stock., including the possibility of more competition in the sector. Wal-Mart (WMT) is reportedly close to getting into the single-serve coffee game.



Original Article Source by Barrons.com