by Serge Berger | February 7, 2014 8:02 am
Green Mountain Coffee Roasters (GMCR) just bucked the big trend of moving on earnings … even though GMCR stock absolutely moved, and absolutely moved after earnings.
The maker of specialty coffee and the Keurig single-cup brewing systems reported first-quarter earnings Wednesday evening, posting profits that were up 26% year-over-year to 96 cents per share, beating estimates of 90 cents. GMCR revenues were in line at $1.4 billion, but those sales were 4% higher year-over-year. On the outlook front, Green Mountain now expects to earn 93 to 98 cents per share for the current quarter; analysts expected $1.02.
However, what really pushed GMCR stock the next day wasn’t earnings, but Green Mountain’s other big announcement — namely, a game-changing collaboration with none other than soft drinks giant Coca-Cola (KO). Green Mountain Coffee Roasters signed a 10-year agreement with KO to aid in the development and introduction of the Coca-Cola’s products for use in Green Mountain’s upcoming Keurig Cold beverage system. Coca-Cola also purchased a 10% stake in GMCR stock for $1.25 billion, and the massive rally that ensued in GMCR added just about $5 billion in market capitalization.
This is big news indeed, and something we must respect as traders. After jitters around the company’s competitiveness — in particular vs. Starbucks (SBUX) — knocked the stock down in 2011 and 2012, this news and price action puts GMCR stock right back into play, although meaningfully bullish price action has been well underway for more than a year.
In the bigger picture, GMCR formed a solid bottom in late 2012, then saw several up-gaps, the most meaningful of which came in May 2013 when the stock gapped past a resistance line that dated back to late 2011. Given the stock’s choppy nature, it took another six months for the stock to retrace this up-gap, but eventually the breakout area (lower black line) held. Through the same lens, Thursday’s massive 26% rally in GMCR stock is of great technical significance and also likely sent the last of the ultra-bears running for the hills.
On the daily chart, Green Mountain’s big rally blew it right past a nice, tight resistance line dating back to August. Also note that in recent weeks, GMCR stock coiled up and consolidated above all of its medium-term moving averages.
While I am no proponent to blindly chase a move like this higher, I do think GMCR stock has more upside in coming months. I would like to see Green Mountain shares consolidate around the $95-$100 mark for a few days (or even a couple of weeks), which would help build a higher base from which shares can push higher again with better probabilities.
Should GMCR quickly overtake the $110 in coming days and fail to consolidate Thursday’s rally, I might try the stock from the long side for a quick trade, but I’ll still want to wait for a consolidation period to buy the stock from a swing-trading perspective.
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the Essence of Swing Trading e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities
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