Presentation on theme: "Husky Traders Stock Pitch: GMCR Nabil Manji February 26, 2014."— Presentation transcript:
Husky Traders Stock Pitch: GMCR Nabil Manji February 26, 2014
Industry Overview COFFEE! NA/Europe: Coffee = 1/3 of water consumption 2.25b cups consumed per day worldwide Size: ~$120b global market ~$15b sold by coffee brewers/retailers Second most traded commodity behind oil Sectors: Brewers/retailers: SBUX, local coffee shop At Home: Nestle, Folgers (>60% mkt share) New “Convenient At Home”: Keurig, Verisimo, Nespresso, etc.
GMCR Company Overview Founded 1981 as producer, distributor, and retailer of organic, fair trade, and specialty coffees Buys from farmers refines & roasts sells to brewers, retail chains, and directly to consumers Revolutionized home brewing… No messy filters Variety of choices pleases all Convenient & fast No waste Easy to clean up (no dishes) In 2006, acquired Keurig
Growth Catalysts Starbucks raising prices $3-5 per drink unsustainable Keurig Pods ~$0.25 per drink Growing health conscience reversion to drip/black coffee away from fat, sugary milk-based espresso drinks Desired convenience without hindrances Easy expansion no regulatory hurdles Sincerest form of flattery is when your competitors copy you… Starbucks VerismoNespresso Cuisinart
Technicals v. “Competitors” CompanyGMCRSBUXDNKNSector P/E Price/Sales Beta Op. Margin % (5yr avg.) 18.37%15.01% 32.94% 18.92% Dividend Yield Forecast Sales Growth 11.30%10.90% 7.60% - Price to Cash Flow Quick Ratio
Outlook Strategic: Home brewing growing ~5% annually since 2004 Cost- and health-conscious consumers move away from Starbucks- esque drinks Keurig has long-term contracts with many producers (Lavazza, Dunkin, Tully’s, GMC, etc.) New partnerships with manufacturers (Cuisinart, etc.) increase margins over long-term by focusing on K-pods Entry into commercial market prime for disruption Marketing customer entrenchment Operational: Moving towards asset light structure (outsourcing production to other manufacturers) Rapidly increasing size more power over suppliers
Risks Patents expired last year easy for competitors to copy Dependence on suppliers to maintain variety Quality concerns over Keurig machines haven’t been satisfactorily addressed/corrected Big price jump after beating 2013 earnings forecasts; maybe we’re too late & future is already priced in?
Takeaways Price/Stock: Based on sales/margin growth expectations, a bargain compared to competitors & industry/sector Newly implemented dividend of $1.00/share Analyst mean/median target: $ (current price = $116) My Thesis (risky): Keurig entering more retailers, homes, businesses Once people own machine high margin K-cups Earnings play (announcing May 5) Most Keurigs sold holiday season many K-cups will be sold this quarter for new owners