It's not easy being Green Mountain Coffee Roasters (NASDAQ:GMCR).
SunTrust downgraded shares of the company behind the Keurig single-serve coffee marker from buy to neutral this morning.
SunTrust is sticking to its $90 price target. This is basically a valuation call. The stock has more than tripled over the past year to begin the holiday-shortened trading week at $86.31. SunTrust had to either bump its price goal higher or downgrade the stock.
It seems to be making a mistake by going for the downgrade.
Obviously, Green Mountain isn't as cheap as it was when it kicked off 2013 at less than half of today's price. It's fetching 27 times what analysts believe it will earn in the fiscal year that ends this month. Green Mountain's forward profit multiple of 23 isn't exactly a bargain, either.
However, downgrading Green Mountain ahead of next week's investor summit -- the fast-growing company's first annual powwow -- is a brazen move.
After all, Green Mountain isn't hosting this event out of desperation. The stock's been on a tear since last summer. It doesn't need to remind investors that it's a viable investment. The only legitimate reason for dragging analysts, investors, and media to next Tuesday's summit is if it has something or some things to introduce.
What if Green Mountain makes a play for SodaStream's (NASDAQ:SODA) faster-growing carbonated beverage niche? That's not as outlandish as it may seem, and even Green Mountain has voiced an interest in new beverage platforms including soft drinks. SodaStream shares have actually been under pressure since Green Mountain's throwaway comment this summer about its interest in carbonation.
What if Green Mountain is expanding its relationship with Starbucks (NASDAQ:SBUX)? History is loaded with instances where the stock gets marked down on fears that Starbucks is backing off the Keurig platform, only to bounce back when the java giant actually strengthens the partnership. Starbucks staged a bold attempt to matter in home-based brewing, but Verismo doesn't seem to be a threat to Green Mountain.
What if we're getting an entirely new brewing system? The move would reset the related K-Cup patents, even though Green Mountain hasn't had a problem continuing to grow in the low double digits since the expiration of the principal Keurig K-Cup patents.
In the end, this is simply lousy timing on SunTrust's part. Green Mountain's going to command attention next week, and the smart money has to be on that attention being favorable.
Longtime Fool contributor Rick Munarriz owns shares of Green Mountain Coffee Roasters and SodaStream. The Motley Fool recommends Green Mountain Coffee Roasters. It recommends and owns shares of SodaStream and 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.
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