Keurig Green Mountain Inc (NASDAQ:GMCR) won’t get by only thanks to help from its friend The Coca-Cola Co (NYSE:KO) … but the company is one of many reasons why Keurig stock should soar in 2015.
GMCR jumped by high single digits last May after Coca-Cola announced it was upping its stake to 16%, then proceeded to climb another 30% in ensuing months. However, since late November, Keurig stock has given up almost all the gains since the KO stake was announced.
Much of the slide was triggered when Keurig offered weak guidance in late November. GMCR started to slide again this month after Keurig’s fiscal second-quarter earnings report in which GMCR missed analyst predictions for revenues and earnings, as well as its quarterly outlook. Keurig also had to recall some of its machines in December.
Regardless of its recent weakness, Keurig stock still looks good going forward thanks to its partnership with Coca-Cola and some tailwinds in the broader coffee industry.
Keurig Is Launching a New Product
GMCR is launching a new cold drink machine called Keurig Kold, which will allow people to make fresh iced tea and sparking water — and thanks to its partnership, ice-cold Coca-Cola. Keurig Kold will compete with Sodastream International Ltd (NASDAQ:SODA), which has teamed up with Coke rival PepsiCo, Inc (NYSE:PEP).
The Keurig Kold will provide GMCR with a huge opportunity to capitalize on the cold beverage market, which is five times the hot beverage market.
Coffee Bean Prices Stabilizing
A severe drought in Brazil, which provides almost half of Arabica beans used to make mild coffee, caused coffee bean prices to jump almost 50% in 2014. However, sufficient rainfall in Brazil has helped hydrate crops — as of last week, coffee prices were down more than a third from multiyear highs — which should ease GMCR’s input costs.
Keurig Teaming Up With Other Appliances
General Electric Company (NYSE:GE) recently announced that it will be releasing a refrigerator with a Keurig machine built inside of it.
GE had developed a unique feature to refrigerators — a Café French door refrigerator equipped with a hot water dispenser. GE marketing manager Dan Goldstein said two-thirds of people surveyed who have the hot water feature said they would buy a refrigerator that brews coffee.
Now, they’ve got that option.
Coffee Gaining Popularity
There’s a laundry list of coffee-related stats that bode well for Keurig:
- According to the International Coffee Association, coffee demand will likely rise 25% in the next five years.
- The National Coffee Association found 29% of coffee drinkers in America used single-cup brewer coffee in 2014, a 50% increase from 2013.
- Americans are spending 60% more on coffee than they did in 2009.
- 53% of people use traditional drip coffee makers compared to 58% last year. GMCR, which produces both single-serve coffee makers and individual coffee pods, is on track to becoming people’s main source for coffee.
Bottom Line
The bread and butter of Keurig’s business (coffee) still has numerous drivers pushing it forward, and the introduction of Keurig’s cold beverage machine should at least provide a quick boost to the company’s bottom line.
Yes, GMCR is trailing the market so far in 2015, but there’s enough positive forces to help turn that around.
As of this writing, Dana Kobilinsky did not hold a position in any of the aforementioned securities.
