5 Reasons to Believe in Green Mountain

It's been one of the markets most caffeinated turnaround stories.

Shares of Green Mountain Coffee Roasters (GMCR.DL) have nearly quadrupled over the past year, defying the skeptics who feared that the company behind the Keurig single-serve coffee platform would crumble after patent protection for its K-Cups expired in September of last year.

It's against this redemptive backdrop that Green Mountain is setting up camp for tomorrow's fiscal third-quarter report.

It should be a good one, but don't just take my bean water-fueled word for it. Let's go over a few of the reasons why Green Mountain is positioned well for a strong quarter.

1. Coffee continues to grow in popularity
Starbucks (SBUX 0.27%) posted strong quarterly results two weeks ago, fueled by a 13% pop in revenue that came largely from an 8% increase in global comps. Same-store sales rose an even better 9% in the United States, which is the better indicator for Green Mountain's performance given its current stateside bent.

One can argue that Starbucks isn't a fair proxy for premium java. If anything, the baron of baristas is gaining ground as the unemployment rate drops, and an uptick in morning commuters may mean fewer folks brewing Keurig at home as they scour the online classified ads. Really? Have you seen the number of corporate break rooms that now have Keurig machines?

2. Coffee costs have been heading lower
Margins are improving at Starbucks and Green Mountain, primarily because coffee costs are heading lower and they're not mandated to pass on all of the savings to consumers.

Starbucks grew revenue at a 13% clip, but earnings climbed 25% during the same period. Analysts see an even larger disparity at Green Mountain. The pros are targeting revenue to climb 13% -- just like Starbucks -- but they see earnings per share soaring 48% for the period.

3. Green Mountain's been a beater on the bottom line
One would think that forecasting 48% bottom-line growth would be ambitious, but Wall Street has actually been conservative in sizing up Green Mountain over the past year.

Source: Thomson Reuters.

Beating estimates is nice, but landing ahead of the pros by double-digit percentage margins the way Green Mountain has done in its last three quarterly outings is even better.

4. We have become a world of beverage makers
Making soda at home seemed silly until SodaStream (SODA) popped in popularity. Shares of the company behind the namesake maker of carbonated beverages moved sharply higher last week after posting blowout quarterly results.

Revenue rose 29%, and stateside sales grew even faster.

SodaStream isn't exactly a household name just yet. It has penetrated just 1% of the U.S. market. However, it's only been aggressively marketed in this country for four years. It has better than 10% market penetration in four of its more established markets.

SodaStream's strong report isn't a fair proxy for Green Mountain. If anything, SodaStream's cold beverages and Green Mountain's warm brews have entirely different seasonality consumption patterns. However, the trend of embracing self-made beverages is real, and both stocks have been big winners over the past year.

5. Green Mountain continues to ink new partners
As Keurig grows in popularity, makers of coffee, tea, and other beverages have struck deals with the company to get their products out in K-Cups. The patent expiration last fall doesn't make this a necessary step, but food and beverage giants are finding it easier to work with Green Mountain than to be renegade third-party providers. 

It's not just about the java heavies, as Green Mountain has struck deals with killer brands including V-8, Crystal Light, and, most recently, Cinnabon for flavored beverages in K-Cups to be served hot or over ice.

It's all incremental. It's about gaining shelf space. It's about appealing to a widening audience, and that's something that has kept Starbucks' own Verismo in check.

It's a good time to be Green Mountain, and we should find out for sure tomorrow afternoon.