Analyst lifts Green Mountain Coffee price target

January 11, 2013

NEW YORK (AP) -- An analyst boosted Green Mountain Coffee's price target on Friday, saying the company does not have to worry too much yet about new competition for its K-Cups.

THE SPARK: William Chappell Jr. of SunTrust Robinson Humphrey increased his price target on Green Mountain Coffee Roasters Inc. to $50 from $45.

THE BIG PICTURE: A pioneer of single-serve coffee in the U.S. with its Keurig machines, Green Mountain Coffee grew quickly on their popularity. But the company is now facing tougher competition as patents on technology for its K-Cups expired. Rivals such as Starbucks Corp. have released their own single-serve coffee makers and others are coming out with their own single-serve coffee packets.

THE ANALYSIS: Chappell said in a client note that there are new private label K-Cups from companies like TreeHouse Foods, Maxwell House and Gevalia options from Kraft and new partner brands from Eight O' Clock Coffee.

The analyst said that Kraft looks to be the toughest rival, due to its well-known Maxwell House brand and strong retail relationships. While investors worried that Kraft might substantially discount its products, Chappell said that so far the price per K-Cup from Kraft — which currently has 12-count boxes — is the same as Green Mountain and Folgers Select brands.

The analyst noted that private label K-Cups are being sold at a cheaper price than their branded counterparts, but that the price difference between the two is actually much smaller than what is normally seen when comparing private label and branded products.

"While we continue to believe there is a good long-term opportunity for private label K-Cups, we expect a slow build in 2013," Chappell wrote.

The analyst also feels that the core Keurig consumer is not that sensitive to price and would likely trade down to a cheaper branded K-Cup before buying a private-label version.

SHARE ACTION: Shares of Green Mountain Coffee climbed $1.83, or 4.6 percent, to $41.46 in afternoon trading. The stock has traded in a range of $17.11 to $71.15 over the past year.