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Can Keurig Green Mountain Keep It Up?

By Rick Munarriz – Mar 17, 2014 at 8:51AM

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Keurig Green Mountain rallies, but keeping those gains will be the challenge.

It was a great week for Keurig Green Mountain (GMCR.DL) shareholders. The stock climbed nearly 7% on the week, bucking the trend that sent the major market indexes sharply lower. 

The week began with a name change. Shareholders approved the renaming of Green Mountain Coffee Roasters. The new corporate moniker -- Keurig Green Mountain -- embraces the single-serve coffee platform that put the java roaster on the map. 

The shares then went on to rally on Friday after the company tweaked its K-Cup deal with Starbucks (SBUX 0.33%). In exchange for giving Starbucks more attractive economic terms, Starbucks will relinquish exclusivity in the super-premium category. In other words, Keurig Green Mountain can now work with other high-end java brands to put out licensed K-Cup portion packs. Keurig Green Mountain didn't waste any time using its new freedom, entering into a multiyear manufacturing and distribution agreement with Peet's Coffee & Tea for licensed coffee and tea K-Cup packs that will be introduced this summer.

Things got even better after the trading week came to a close, when Standard & Poor's tapped the java darling to be added to the S&P 500. Keurig Green Mountain is currently in the more obscure S&P MidCap 400, but it will be promoted to the larger S&P 500 at the end of this trading week. The move may not have any bearing on Keurig Green Mountain's fundamentals, but it does introduce buying on behalf of index funds and other institutions tracking the S&P 500.

It has clearly been an awesome year to be a Keurig Green Mountain investor. The stock is already up 50% in 2014, and that's through Friday's close before the S&P 500 pop. 

The major catalyst was Coca-Cola taking a 10% stake in Keurig Green Mountain last month in anticipation of the rollout of Keurig Cold in the company's next fiscal year. Between Keurig 2.0 as a new coffee brewing platform and Keurig Cold for carbonated or chilled beverages with Coca-Cola as the ultimate brand partner, things are looking up at Keurig Green Mountain. 

However, we can't dismiss last week's wave of good news. The name change may seem immaterial, but it's an emphasis on the Keurig brand that was long overdue. Taking less money from Starbucks for licensed K-Cups was seen as a positive by the market because it opens the door to more high-end java brands going the licensed route ahead of the new patent protections that will come with Keurig 2.0. Finally, the cherry on top -- the S&P 500 induction -- will gobble up a ton of the float that will go into steady hands as long as folks keep buying index-tracking vehicles.

It was a lousy week for the market, but it was definitely a week to remember for Keurig Green Mountain.  

Rick Munarriz owns shares of Keurig Green Mountain Coffee. The Motley Fool recommends Keurig Green Mountain. It recommends and owns shares of Coca-Cola and Starbucks and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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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