As we round up another week of trading stock options today, we explore the possibilities provided by the options of Keurig Green Mountain Inc. (NASDAQ:GMCR). Keurig Green Mountain with a market capitalization of $20.48B is a specialty coffee and coffeemaker businesses in the United States and Canada. The Company is a provider and wholesale distributer of premium coffee. The company offers coffee, tea as well as other beverages like hot apple cider, cocoa and other dairy-based beverages.
Reasons to Buy
- Impressive Financials
Keurig Green Mountain released its Q2 2014 earnings in May to beat the company’s guidance and analysts’ estimates. The company reported earnings of $1.08 per share to beat the Zacks Consensus Estimate of $0.95 by an impressive 13.7%. More so, the earnings beat the company’s EPS guidance in the range of $0.93 and $0.98.
Keurig Green Mountain also reports that its quarterly net sales grew by 10% to $1.1B to beat the Zacks Consensus Estimate of $1.04B by 5.7%. The company also reported growth across all its major segments with sales in K-cups and Vue packs increasing by 8%, sales in Single Serve Packs increasing by 13% and net sales of Brewers and Accessories increasing by 9.0%. Keurig will release its Q3 2014 results in the first week of August and we can expect the stock to rise higher as the company delivers another strong quarterly report.
- Strong Brand Portfolio
Keurig Green Mountain enjoys market dominance in its niche, thanks to a strong brand portfolio of award-winning coffees and the innovative Keurig Single Cup brewing technology. Some of the company’s strong brands include Tully’s Coffee, Diedrich Coffee, Van Houtte and Timothy’s World among others.
Keurig Green Mountain is also branching out into new product segments with its entry into the Esperesso Coffee System Category in Canada and its entry into the home-brewed carbonated drinks segment. I strongly believe that this strong brand portfolio and the branching out into the soda segment with Keurig Cold will continue to help the company maintain its market dominance and drive growth and profitability.
- Potential Acquisition Target
Keurig Green Mountain and Coca –Cola (NYSE:KO) have a mutually beneficial relationship going for a while and speculations that Coca-Cola might make a move to acquire Keurig has been increasing lately. In February, it was reported that Coca-Cola and Keurig has entered into a long-term global strategic partnership in which Coca-Cola acquired a 10% minority stake in Keurig Green Mountain.
The relationship has not gone sour as it was recently reported that Coca-Cola has increased its stake in Keurig Green Mountain from the initial 10% to 16%. This move automatically makes Coca-Cola the largest shareholder in Keurig Green Mountain in line with Coca-Cola’s tradition of gradually increasing its stake before it makes an acquisition move.
The probability and possibility that Coca-Cola will eventually make a move to acquire Keurig is high given how much Coca-Cola needs the acquisition to get back to the growth track. Coca-Cola sales in developed markets has been flat over the last couple of years and no volume of advertising can change the fact the consumers in developed markets are becoming more health-conscious. Hence, Coca-Cola needs Keurig to win back the health-conscious consumers by allowing them to brew their drinks with an assortment of healthier alternatives.
How to Trade GMCR Options
Shares of Keurig Green Mountain are trading up 4.87% today (around 11:41AM EDT) and the stock-still has much upside potential. The stock is already up 64.79% since the market opened this year. I am bullish on Keurig Green Mountain and I recommend the GMCR Sep 2014 130.000 call (GMCR140920C00130000).
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