M&A

13 January, 2010

Analyst starts Green Mountain with 'Buy' rating

On Wednesday January 13, 2010, 12:36 pm EST

NEW YORK (AP) -- An analyst started coverage of Green Mountain Coffee Roasters Inc. with a "Buy" rating Wednesday, saying the company's sales and earnings will probably continue to grow over the next three years as it pervades the domestic market further.

Anton Brenner of Roth Capital Partners said Green Mountain, based in Waterbury, Vt., wants to push sales of its single-cup brewer to build demand for the K-Cups that the machine uses. The analyst estimates less than 5 percent of U.S. homes that drink coffee own one of Green Mountain's Keurig brewers, with most of those owners in the Northeast. This leaves the company with a large portion of U.S. home coffee drinkers that it has yet to tap.

Brenner also expects the company's acquisitions of Tully's and Timothy's Coffees of the World Inc., and a proposed deal for Diedrich Coffee Inc., to improve gross profit margins starting in fiscal 2010.

The analyst set a $110 price target for Green Mountain.

The company's stock added $2.80, or 3.5 percent, to $83.41 in midday trading. Over the past year, it has traded in a range of $21.35 to $85.05.

Green Mountain completed its purchase of the Tully's Coffee brand and wholesale coffee business from Tully's Coffee Corp. in March 2009 for $40.3 million.

The company bought Toronto specialty coffee company Timothy's in November 2009 for $157 million. The transaction included the Timothy's World Coffee brand and wholesale business but did not include retail operations.

Earlier this month, Green Mountain extended a deadline to buy all the outstanding shares of Diedrich. The coffee roaster and wholesaler had also been courted by Peet's Coffee and Tea, but Green Mountain paid an $8.5 million termination fee to Peet's, which had agreed to buy Diedrich before Green Mountain stepped in.