Over the last year or so, coffee giants Keurig Green Mountain (NASDAQ:GMCR), Starbucks (NASDAQ:SBUX), and Dunkin' Brands (NASDAQ:DNKN) have each had a great run. These companies have been able to outmaneuver the economic downturn by posting great results on a consistent basis. In this article, I will dissect Keurig Green Mountain's latest partnerships and examine their effects on the company's future.
On March 14, Starbucks amended its deal with Keurig Green Mountain; the changes will allow Starbucks to offer a wider selection of Keurig Green Mountain's K-Cup coffee packs. In exchange, Starbucks will give up its exclusive license for Keurig's highest-end coffee pods.
Changes in the agreement mean that Keurig Green Mountain can secure licenses with coffee brands other than Starbucks, which will multiply the Keurig maker's revenue in the near future. As soon as this announcement occurred, Green Mountain's shares climbed by more than 8%.
On the very same day, Green Mountain and Peet's Coffee & Tea announced an agreement to launch Peet's coffee and tea varieties in K-Cup packs for Keurig brewers. The beans for Peet's K-Cup packs will continue to be roasted by Peet's renowned roasting facility in Alameda, CA.
Peet's will distribute the K-Cup packs to grocery markets and club stores, mass merchandisers, and Peet's retail stores; Keurig will distribute them to specialty and department stores and away from home channels. The K-Cup packs will also be available online at peets.com and keurig.com.
Given the fact that Peet's is one of the most cherished coffee makers, this collaboration will certainly attract more customers to the Keurig brewers and pods.
Previously, Keurig Green Mountain and Coca-Cola announced a partnership to develop the soda maker's brands for the latest gadget, Keurig Cold. Just like SodaStream's soda-making device, the new system will enable people to make soda beverages at home. After the announcement, Keurig Green Mountain's shares jumped by more than 35% in after-hours trading. Keurig Green Mountain is well known for its Keurig single-cup brewing system; Keurig Cold will be available in the market in 2015.
This is probably one of the biggest deals for Keurig Green Mountain in the last few years. As we all know, Coca-Cola is the most famous brand around the world in carbonated drinks; the agreement will ensure Keurig Green Mountain's sales continue to rise exponentially in the future as well.
Is Green Mountain undervalued?
At the moment, Green Mountain's stock is hovering at around $99 per share. In February, shares were at their 52-week high of $124.42. The company's 50-day moving average is $107.20.
Green Mountain's low price-to-sales and price-to-earnings growth reflects the fact that the company is slightly cheaper than its peers Starbucks and Dunkin' Brands. Moreover, it has solid quarterly earnings growth of 25%. On top of that, its capital appreciation on a year-over-year basis stands at more than 80%. In a nutshell, Keurig Green Mountain is undervalued at this stage.
Starbucks and Dunkin' Brands
Recently, Starbucks said that it will be moving its European headquarters from Holland to London. As a result, the company must pay higher taxes in the UK. The decision to shift the headquarters comes after the company was criticized for paying lower taxes in the UK.
Previously, the company was summoned by Parliament regarding its tax affairs; Reuters reported in 2012 that the coffee chain told the UK tax authority its British business was producing a loss, whereas investors were informed that the subsidiary was profitable. Starbucks' year-over-year capital appreciation stands at 23%, while its quarterly earnings growth was 25%.
With summer on the way, restaurant chain Dunkin' Donuts has introduced new iced tea beverages for its customers. The tea will be available in a variety of fruity flavors including blueberry, peach, and raspberry. Furthermore, its New York metro-area customers will be able to enjoy any sized Iced Green Tea for just $0.99 until April 30. The company's management said that it was excited about the launch of Iced Green Tea in the metro New York area; the item is expected to attract many customers.
Dunkin' Brands' investors have enjoyed a year-over-year return of 30%, whereas earnings have grown by 23%.
When a company provides a return of more than 80% in just a year, it's no longer classified as a normal stock. "Super stock" Keurig Green Mountain is still a great buy thanks to its recent partnerships with Starbucks, Peet's, and Coca-Cola. These deals are a testimony to the fact that Keurig brewers are getting more popular day by day. Moreover, Keurig Green Mountain's stock price has fallen from a high of $124 to $99, which makes it even more attractive. In short, Keurig Green Mountain is still one of the best buys in the coffee industry.
Waqar Saif has no position in any stocks mentioned. The Motley Fool recommends Keurig Green Mountain and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. 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.