Keurig Green Mountain (GMCR) Gains as Morgan Stanley Says Shares Trading at 'Material Discount'
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Rating Summary:
5 Buy, 15 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 13 | New: 18
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Keurig Green Mountain (NASDAQ: GMCR) is solidly higher Friday (+3.3%) following bullish comments from Morgan Stanley analyst Matthew Grainger.
While the firm is recalibrating their model to reflect near-term pressures, the analyst notes shares trade at a "material discount to peers (~10x C16 EV/EBITDA) despite secular growth potential from ongoing single-serve coffee expansion and a disruptive innovation platform in KOLD."
"The stock now trades at ~10x C2016e EV/EBITDA, at the low end of the Food sector and a 25% discount to high-growth peers," Grainger elaborated. "The scale of the market's current pessimism on the stock is even more apparent on a Sum of the Parts basis, with the core Hot platform trading at <7x EV/EBITDA excluding our $30/share DCF-derived value for KOLD. We acknowledge that tangible improvement in results will be required to drive the stock higher following recent earnings disappointments, but believe current valuation is unsustainably low."
The analyst notes four reasons they believe GMCR’s core Hot business can re-accelerate following a challenging 2015:
- (i) Continued double-digit K-Cup category growth;
- (ii) Further opportunity to expand HH penetration for the single-serve coffee category in the US, particularly versus other developed markets;
- (iii) Our proprietary AlphaWise survey data, which shows little deterioration in brewer purchase intent; and
- (iv) Untapped opportunities to expand internationally.
The firm adjusted their forecasts and 2016 EPS outlook from $4.25 to $4.08)to reflect a more gradual roll-out for KOLD. Added to the recently revised, guidance the analyst's price target moves to $130 (from $140).
Despite the cut the firm remains positive on the potential for KOLD, and believe the combination of strong product quality and innovative technology will prove compelling. "We believe the initial $299+ price point, which serves as a "gating factor" for initial adoption, is a necessary step in launching a new premium consumer technology, and see our outlook for ~4% HH penetration by 2020 as a highly achievable/conservative benchmark. Net, our outlook for ~$30/share in attributable value is essentially unchanged."
For an analyst ratings summary and ratings history on Keurig Green Mountain click here. For more ratings news on Keurig Green Mountain click here.
Shares of Keurig Green Mountain closed at $83.39 yesterday.
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