Why Keurig Green Mountain Inc Stock Shot Up Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Keurig Green Mountain Inc  (NASDAQ: GMCR  ) were bubbling higher today, gaining as much as 12% after Coca-Cola  (NYSE: KO  ) stepped up its investment in the single-cup coffee brewer.

So what: Coke said that it planned to increase its stake in Keurig from 10% to 16%, explaining, "These incremental purchases demonstrate our continued belief that Keurig Green Mountain has substantial growth potential." The announcement follows a February deal between the two companies in which Coke agreed to share its beverage portfolio with Keurig for the new Keurig Cold brewing system, and took a 10% stake in the K-Cup maker. The move will make Coke Keurig's largest shareholder and, unlike the 10% stake it acquired earlier, will not dilute shareholders further, as Coke plans to buy shares on the open market with the help of Credit Suisse.

Now what: The move clearly strengthens the relationship the two companies had outlined back in February, and is a boon to Keurig shareholders, as Coke's purchases should drive up the share price. Due out in fiscal year 2015, the Keurig Cold machine represents an opportunity for Coke to extend its brand reach at a time traditional soda sales are falling in the U.S. For Green Mountain, partnering with the world's largest beverage company could make the new brewing system a blockbuster product. Investors are clearly hoping so, as Keurig shares shot up 40% when the first deal was announced.

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