Starbucks (SBUX) Could Be Licking Their Chops after Green Mountain's (GMCR) Collapse

May 3, 2012 3:37 PM EDT Send to a Friend
The big news on Wall Street Thursday is the absolute bloodletting at Green Mountain Coffee (Nasdaq: GMCR). Shares of the single serve coffee leader are down an astonishing 48 percent after disappointing Q2 results and dismal guidance.

The dramatic sell-off has shares trading at about 10x the company's revised FY EPS guidance of $2.40-$2.50, which possibly puts the company in play as a takeover target.

Starbucks' (Nasdaq: SBUX) CEO Howard Schultz, a partner of Green Mountain, may be crunching the numbers as we speak. Schultz would love to dominate the single-serve market like it has the retail coffee market. Even though it's coming to the market with its own single-serve product, Verismo, Schultz probably knows that the installed base of Green Mountain is the real prize and would probably love to get his hands on it. Schultz likely has a great view of the market for single-serve and can quickly value Green Mountain. However, expiring patent issues could throw a wrench into a proper valuation model as it is still the unknown.

In addition to Starbucks, it is likely that private equity firms are crunching the numbers too.

Green Mountain could be consider a falling knife - something investors should never sink money into - but, with possible real buyers lurking on the sidelines, things may stabilize and soon.


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