Recent developments: Lipton K-Cup packs
After enjoying great success in coffees, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has decided to expand its K-Cup packs to the tea market. Green Mountain and America’s favorite tea brand, Lipton, have gone through a partnership, allowing Keurig brewers to enjoy Lipton’s hot and iced tea varieties, now available in K-Cup packs. Lipton K-Cups are coming in three unique combinations; Lipton Refresh, Lipton Indulge and Lipton Soothe.
Cinnabon K-Cup packs and more
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has recently announced that it’s going through a multi-year agreement with the maker of world famous cinnamon rolls, Cinnabon, enabling the company to bring “Cinnabon Classic Cinnamon Roll K-Cup packs” for the Keurig single-brewing system. Cinnabon K-Cup packs are all set to be launched on Green Mountain’s website during the holiday season.
Lately, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) also introduced its special “Costa Rica Finca El Quizarrá White Honey Special Reserve Coffee.” The “honey washed” coffee is made from Red Catuai and Caturra varieties, known all over the world for their exemplary cup quality.
As sweet, bright coffees are getting more popular, this latest addition to Green Mountain’s reserve coffees was always on the cards, the company said.
Going forward
Among these new deals, Lipton K-Cup packs would have the biggest effect on Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’s sales. According to Mintel‘s Tea and RTD report, the U.S. tea market is expected to grow more than 50% by the end of 2016, making it one of the biggest beverage markets in the U.S. As Lipton is one of the leading tea brands in the world, its K-Cup packs for Keurig brewers should bring incremental revenue for the company in the future.
With Cinnabon still the market leader in cinnamon-roll bakeries, its K-Cups would further add to Green Mountain’s growth prospects. Besides this, Green Mountain has already extended its partnership with Starbucks Corporation (NASDAQ:SBUX). As Starbucks Corporation (NASDAQ:SBUX) is the market leader in the U.S. coffee industry, Green Mountain’s recent agreement with Starbucks Corporation (NASDAQ:SBUX) would enable Starbucks Corporation (NASDAQ:SBUX) to sell more K-Cups for Keurig’s coffee makers, enhancing Green Mountain’s sales.
According to “The NPD Group“, Dunkin Brands Group Inc (NASDAQ:DNKN) serves the most hot and iced coffee in America. Globally, the company sells more than 1.7 billion cups of coffee every year. As Dunkin Brands Group Inc (NASDAQ:DNKN)’ K-Cup packs are already available for Keurig, Green Mountain’s future looks secure as ever.
Valuation
Since the beginning of 2013, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR)’ share price has gone up by almost 38%, reflecting a great deal of confidence among its investors. Green Mountain is trading at a low forward price-to-earnings ratio of 21.6, making it a relatively cheap buy in the coffee industry. A low PEG of 1.1 shows that it’s still an undervalued stock. According to the sell side, Green Mountain has a high target price of $95, depicting an upside potential of 20%.
Coffee industry’s major players
The world’s most renowned coffee company, Starbucks Corporation (NASDAQ:SBUX), has chosen Google to provide the next generation Wi-Fi facility to its customers. As a result, Starbucks Corporation (NASDAQ:SBUX)’ customers would be able to enjoy a 10 times faster network. During the next 18 months, the company has plans of upgrading more than 7,000 stores to the new Wi-Fi facility. As huge number of people come to Starbucks to work, study, or connect with friends; a high-speed Internet is of foremost importance to the company’s revenue.
Starbucks has also announced a strategic partnership with the dairy giant, Danone, which would enable Starbucks to serve healthy specialty yogurts at its stores. This will not only help Danone in expanding its yogurt products in the U.S., but it will also allow Starbucks to grow its health and wellness offerings in the country. The new variety of yogurts would be launched under the Evolution Fresh brand.
In its latest-quarter, Starbucks Corporation (NASDAQ:SBUX)’ earnings jumped to a record $0.55 per share. Revenue increased by 13%, driven by high comparable sales growth of 8%. As Starbucks is consistently expanding itself, it remains on track to achieve growth of almost 10% during the next quarter. Starbucks is trading at a high forward price-earnings of 27.8 and yields a dividend of 1.1%, making it more expensive than Green Mountain. A mean recommendation of 1.7 on the sell side makes Starbucks the best buy in the coffee industry.
In an effort to grow itself in the lodging market, Dunkin Brands Group Inc (NASDAQ:DNKN) has announced that it would be opening two new stores at Great Wolf Lodge resorts in Virginia and Michigan. This latest move comes as part of Dunkin Brands’ strategy of targeting travelers, who want to enjoy a family-resort vacation.
In its latest quarter, Dunkin Brands Group Inc (NASDAQ:DNKN) was able to double its net profit to $0.38 per share. The chief reason behind this jump was high sales in the international regions, especially Southeast Asia. After Baskin-Robbins’ huge success in the Middle East, Dunkin’ Brands has decided to expand into Germany as well.
In order to compete with its biggest rival, Starbucks, Dunkin Brands Group Inc (NASDAQ:DNKN) has plans of expanding itself across the globe. However, Dunkin’ Brands still needs to do a lot of work before it can give Starbucks a tough time in the coffee market. Dunkin’ Brands is trading at a forward price-to-earnings of 24.8 and yields a dividend of 1.7%, making it slightly cheaper than Starbucks. A mean recommendation of 2.2 on the sell side depicts that it’s also one of the top buys in its industry.
Conclusion
As Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has successfully established itself among the big coffee and tea giants, Keurig’s prospects look really bright. Given the fact that the company is consistently expanding its reserve coffees, its K-Cup market share is bound to go nowhere but up. The bottom line is that Green Mountain Coffee Roasters is still one of the best buys in the coffee industry. In short, buy it for an upside of 20%.
The article A Hot Coffee Deal in Town originally appeared on Fool.com and is written by Waqar Saif.
Waqar Saif has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. Waqar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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