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Green Mountain's Slam Dunk

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Starbucks' (Nasdaq: SBUX  ) plans in the single-serve coffee market brewed up a ton of rumors recently, but the coffee giant's moves now sound more than a little lukewarm. That's because Green Mountain Coffee Roasters (Nasdaq: GMCR  ) is partnering up with rival Dunkin' Donuts in the single-serve coffee market.

As it stands, Green Mountain's already got agreements with companies like Caribou (Nasdaq: CBOU  ) , JM Smucker's (NYSE: SJM  ) Folgers and Millstone, Hain Celestial (Nasdaq: HAIN  ) , Newman's Own, and many others to provide K-Cups for its Keurig single-serve brewers. Now that it's got Dunkin' Donuts on the list, this fresh cup o' caffeinated competition sounds like a coup for Green Mountain -- at Starbucks' expense.

Starbucks recently announced a deal to provide single-serving coffee in hotel rooms through Courtesy Products, but that hardly sounds exciting by comparison. Many investors had really wanted to hear that Starbucks and Green Mountain would team up with K-Cups, but it's increasingly sounding like Starbucks will go it alone in the single-serve market.

Meanwhile, Dunkin' Donuts appears to enjoy a cult following that can't bear to drink Starbucks, which could make this a major win for Green Mountain and its Keurig brewers. That said, the Dunkin' Donuts K-Cups will only be available in the donut chain's stores, which could limit the impact for the time being.

Green Mountain stock's too expensive for my blood, packing major risks to boot. However, its deal with Dunkin' certainly could lure in new customers while slam-dunking some of Starbucks' plans for a better foothold in the single-serve market. After all, the more Keurig single-cup brewers installed in consumers' households, the less potential customers there are to wander into Starbucks' stores on a regular basis, or even to buy Via instant coffee, its own version of a single-serve convenient cup.

What do you think of this development? Brew up some fresh insights in the comments box below.

Green Mountain is a Motley Fool Rule Breakers selection. Starbucks is a Motley Fool Stock Advisor pick. Motley Fool Alpha has opened a short position on Green Mountain. Motley Fool Options has recommended buying puts on Green Mountain. The Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2011, at 6:40 PM, Glycomix wrote:

    Ms. Lomax:

    I'm mystified. Are you able to explain why Green Mountain Coffee stock price went up 22% when it had earnings and reporting problems?

    Its earnings margin is a unremarkable 4%. Google finance income statement indicates that Green Mountain's reported net income has gone to almost nothing over the last two quarters. (Click on the Income sheet in the following link.)

    Since GMCR isn't making money, it has to get operating funds from somewhere. The trend from the balance sheet shows a disturbing trend. Money from investors have disappeared and it is getting most of its funds for day to day operations from bank loans. The balance sheet show that to supply operating funds, debt has increased from around 10% in 2010 Q1 to approximately 25% in Q2 & Q3 of 2010 to just below 50% in the fourth quarter of 2010. (To see what I'm talking about, click on the Balance Sheet in the following link: )

    Although Green Mountain has enough cash to easily cover it's debts, Finviz reports that Green Mountain Coffee's total Debt to Equity Ratio is high: 1.15.

    As you've mention in this article, in addition to its financial difficulties, Green Mountain is under SEC scrutiny for a delay in filing its quarterly earning report.

    Considering that it is losing money and has reporting problems, I don't understand why Green Mountain Roaster's stock increased 31% in two weeks: from $33.25 on Feb 2 to $43.85 on Feb 14, 2011. Like the rest of the market, GMCR has declined in the past week. However, its stock price on Friday Feb 25 at market close today was $40.82 and has increased in after-hours trading. That's still a 22% increase in the past three weeks.

  • Report this Comment On February 25, 2011, at 7:29 PM, LQM2 wrote:

    Ms Lomax:

    Very insightful article, as you point out GMCR is in an excellent position and SBUX is playing a weak hand. By going it alone SBUX is overestimating the strength of their customer relationships.

    Glycomix and many others are mystified because they insist on using slow growth metrics with a hypergrowth company. If GMCR loses money on the Keurig and has a big positive NPV on the K's, I want them to grow so fast they don't make any money in the current period!!! Grab share now!!They'll make plenty later when growth stabilizes.

  • Report this Comment On February 25, 2011, at 7:33 PM, vtphotog wrote:

    I am a longtime GMCR invester. Due some due diligence, forget the headlines. I am so glad GMCR did not hook-up with Starbucks. GMCR is a great company with amazing management. Starbucks has been a trainwreck for the last 5 years. GMCR sold their retail stores 15 years ago, Starbucks put in so many stores, some barely a block away from each other, how dumb is that.

    Return for 5 years, GMCR is 1400%, Starbucks is minus 6%. This is not a new story. 1 year return for GMCR is 48%, 3 year is 480%. People are still focusing that it's an expensive stock. It's always been an expensive stock. It's a small cap, not unusual. Sometimes the expensive one are the best ones.

    The company is going thru some changes, the constant banter by the moronic talking heads is hurting the stock, providing some buying windows. As Jim Kramer says " they know nothing". Several MF articles written in the last couple of weeks by, with all due respect, fools. Look at the % of institutional investors. It's not rocket science why GMCR has been a great investment story for years.

  • Report this Comment On February 26, 2011, at 3:02 PM, stampking74 wrote:

    I still think a deal is in the works with SBUX. I could be wrong but that's my 2 cents.

  • Report this Comment On February 27, 2011, at 9:13 AM, PhilHershberg wrote:

    There have been a great many negative moments in the past 12 years that I have been invested in GMCR. It would be totally impossible for me to even start listing those. But, you can get a good idea by simply looking at GMCR's share price during the past year, since February 2010. See those three big down moves? Well, each of them was secondary to some bad company news.

    Nevertheless, GMCR was the number one stock price gainer among American stocks from 1999-2009, increasing almost 150 times. That not too shabby return is continuing today.

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