Green Mountain Coffee Roasters, Inc. (GMCR) is a growth company in the premium coffee and tea industry. Management is implementing a growth strategy based on a multi-channel geographic penetration business model. The company is expanding geographically and by adding new relationships, such as with McDonald's (MCD) and Lowes Companies (LOW).
Having generated 21 consecutive quarters of double-digit sales growth and nine consecutive quarters with growth in excess of 25%, the stock is fairly valued at a premium P/E. The stock is rated a Hold, primarily because margins are under pressure due to rising input costs and an unfavorable product mix shift.
Green Mountain Coffee Roasters is currently selling at 48.6 times trailing 12-month EPS, reflecting the company's higher-than-average growth profile, given the company's exposure to the attractive premium coffee industry and successful business model. On March 5, 2008, Green Mountain Coffee Roasters announced an 8% to 12% price increase for coffee products. The pricing changes will be effective on orders placed on or after May 5, 2008.
The price increase is in response to the sharp rise in the price of coffee, price increases of other raw materials, and higher energy and transportation costs. Management cited that the costs for the high-quality coffees used by Green Mountain Coffee have risen even more than the general commodity of coffee.
Over the last few years, the stock has traded in a very wide P/E range of 14 to 98, with the stock only having traded above a 40 P/E since November 2006. Net sales have grown at a 29.1% five-year compound annual growth rate (CAGR) and the company has generated 21 consecutive quarters of double-digit sales growth. Better-than-expected quarterly results along with management's positive outlook for fiscal 2008 bode well for the company. The target price is $28.50, which is a 38 P/E multiple our fiscal year-end earnings estimate.
Read the full analyst report on GMCR.
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