Keurig Green Mountain 2 Months Later: An Update on GMCR Calls

Stocks continue higher today and I am pleased to remind you that the S&P 500 crossed firmly above 2000 today to touch a high of 2005.04. It is on this bullish note that we examine how to trade options of Keurig Green Mountain Inc. (NASDAQ:GMCR).

Keurig Green Mountain with a market capitalization of $21.90B is a specialty coffee and coffeemaker businesses in the United States and Canada. I last wrote about trading options of Keurig Green Mountain exactly 2 months ago in a post titled “Awaken Your Portfolio With Keurig Green Mountain Call Options”

In that post, I gave three reasons to buy GMCR calls; namely, impressive financials, strong brand portfolio and potential acquisition target. I then recommended buying the GMCR Sep 2014 130.000 call (GMCR140920C00130000).

Two Months Later

Two months after that post shares of Keurig Green Mountain were trading up 9.96% from the June 27 trading price. As at 11:22AM EDT shares of Keurig Green Mountain were up 0.38% to around $134.71 per share after making a new 52-week high of $135.99 yesterday. The options contract I recommended was up 2.94% to change hands at $7.00 per contract.

GMCR Options

Massive Volume Hike in GMCR Trading Activity

Shares of Keurig Green Mountain experienced massive volume action last Friday after the company announced a multiyear licensing agreement with Kraft Foods Group Inc. (NASDAQ:KRFT). The details of the deal holds that Keurig and Kraft have a manufacturing and distribution deal for Kraft’s branded coffees to be served in Keurig’s single-service pods that are compatible with Keurig brewing systems.

The deal was well received in the investment community as it signals another potential for Keurig to record an increase in revenue. For one, the deal confirms the thesis that Keurig might become an acquisition target in the short to medium term. In addition, the deal confirms my position in the earlier post that Keurig is has more upside potential ahead based on its strong brand portfolio.

Quoting Brian Kelly, President and CEO at Keurig “We hear time and time again that consumers consistently choose the Keurig brewing system for the quality, simplicity, value, and, most importantly, the variety of brands and beverages available in the system.”

Strong Financials Maintained

In June when I wrote about trading GMCR options, I mentioned the fact that Keurig beat the guidance and analysts’ estimate in its Q2 2014 earnings. Keurig has done it again as it delivered impressive outperformance in its third quarter (Q3 2014) results on August 6. Highlights of the third quarter results are provided below:

  • Net sales of $1.02 billion, up 6% from year ago
  • GAAP operating income of $231 million, up 20% from year ago; Non-GAAP operating income of $243 million, up 18% from year ago
  • GAAP diluted EPS of $0.94, up 24% from prior year period; Non-GAAP diluted EPS of $0.99, up 21% from prior year period
  • Free cash flow of $127 million in the quarter and $602 million year to date with 132% free cash flow productivity as a percent of GAAP net income
  • Declares quarterly cash dividend of $0.25

How to Trade GMCR Options

The GMCR Sep 2014 130.000 call (GMCR140920C00130000) option I earlier recommended is set to expire next month and I think this bullish wave offers the best chance to get out of the position. I recommend selling to close all your position TODAY (already up to $8 between when I wrote the first and last paragraphs) before the tide turns. I will be taking a fresh look at Keurig Green Mountain in the coming weeks and I might be buying the GMCR Jan 2015 140.000 call (GMCR150117C00140000) after the dust settles over the current high.

— Daily Option Alerts

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