David Einhorn Spills the Beans on Green Mountain Coffee (GMCR)
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The caffeine buzz from Green Mountain Coffee (Nasdaq: GMCR) may be over according to popular hedge fund manager David Einhorn of Greenlight Capital.
Presenting at the Value Investing Congress Monday, Einhorn raised a number of serious questions about the maker of Keurig single-serve coffee makers and the K-Cups that go inside the machines. He said he is now short the shares.
Bulls believe the company is still in the early innings of growth, and can earn $9 per share. Einhorn on the other hand believes the market is much smaller and argues the company has already penetrated most of it. He sees potential EPS of just $3.50 excluding what he calls "shenanigans."
Einhorn also highlighted reduced transparency, noting the company has been removing disclosure about coffee, k-cups and brewers over the years.
He said a quality business should generate a lot of free cash flow; Green Mountain's cumulative cash flow has been negative for the past five years, Einhorn pointed out..
Einhorn said the company's patents on K-cups will end in 2012. If Green Mountain is unsuccessful in extending the patents, competitors will introduce compatible products.
Green Mountain has been buying companies hand-over-fist to eliminate competition. He said big-name partnerships are providing a false sense of protection, as these deals tend to be low margin. In addition, major retailers have said they want to see private label K-cups.
Einhorn noted Green Mountain has tripled its capex in 2011 and will double again next year. Einhorn said he can't imagine what the company's managers are planning to spend on. Capex has been growing much faster then its business, yet management has been vague about the topic.
In the past, the SEC launched an investigation into accounting at Green Mountain. Despite the probe, Einhorn said the company did little to solve its accounting problems. He believes the company may be engaged in shenanigans with M-Block and the partnership is questionable.
Einhorn's comments are clearly weighing on the stock Monday: shares of Green Mountain are down 11 percent at last check.
Presenting at the Value Investing Congress Monday, Einhorn raised a number of serious questions about the maker of Keurig single-serve coffee makers and the K-Cups that go inside the machines. He said he is now short the shares.
Bulls believe the company is still in the early innings of growth, and can earn $9 per share. Einhorn on the other hand believes the market is much smaller and argues the company has already penetrated most of it. He sees potential EPS of just $3.50 excluding what he calls "shenanigans."
Einhorn also highlighted reduced transparency, noting the company has been removing disclosure about coffee, k-cups and brewers over the years.
He said a quality business should generate a lot of free cash flow; Green Mountain's cumulative cash flow has been negative for the past five years, Einhorn pointed out..
Einhorn said the company's patents on K-cups will end in 2012. If Green Mountain is unsuccessful in extending the patents, competitors will introduce compatible products.
Green Mountain has been buying companies hand-over-fist to eliminate competition. He said big-name partnerships are providing a false sense of protection, as these deals tend to be low margin. In addition, major retailers have said they want to see private label K-cups.
Einhorn noted Green Mountain has tripled its capex in 2011 and will double again next year. Einhorn said he can't imagine what the company's managers are planning to spend on. Capex has been growing much faster then its business, yet management has been vague about the topic.
In the past, the SEC launched an investigation into accounting at Green Mountain. Despite the probe, Einhorn said the company did little to solve its accounting problems. He believes the company may be engaged in shenanigans with M-Block and the partnership is questionable.
Einhorn's comments are clearly weighing on the stock Monday: shares of Green Mountain are down 11 percent at last check.
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