Analyst Sees 20% Compounded Growth For Keurig Green Mountain

Keurig Green Mountain Inc (NASDAQ: GMCR) will hold its own in the increasingly competitive market for single-cup hot beverage brewing, while its nascent cold drink machine will soon capture a major share of the soft-drink market, an analyst said.

The company changed hands recently at $125.19, off $1.05. Shares are down more than 5 percent year-to-date.

Keybanc's Akshay Jagdale reiterated an Overweight rating and $175 price target on Keurig, and said both its sales and earnings will grow at a compounded annual rate of 20 percent over the next five years.

Keurig faces newly launched competition in the single-serve brewer market from manufacturers including Remington, Hamilton Beach, Select Brands and Sensio. Several of the brewers are already in distribution at major retailers.

Keurig expects to launch a cold beverage machine in partnership with The Coca-Cola Co. (NYSE: KO) later this year, but already is confronted with rivals in the form of SodaStream International Ltd. (NASDAQ: SODA) as well as Lavit LLC.

Among 18 analysts following Keurig, eight maintain Buy ratings, seven are at Hold and three are at underweight or Sell, according to FactSet.

But "a premium value is warranted" in Jagdale's view, given what he called Keurig's "best in class" growth prospects.

Jagdale expects the company can further cut its manufacturing costs while maintaining market share in the hot-beverage segment by using innovations in its pipeline that he didn't specify.

Jagdale also predicted Keurig's cold beverage product line, expected later this year, will quickly capture up to 10 percent of the U.S. market for soft drinks.

Keurig recently missed fourth-quarter expectations and offered a disappointing outlook.

Regrets?

The inventor of Keurig's single-serve brewing pods, John Sylvan, told Atlantic Magazine last week that he actually regrets the innovation.

"I don't have one. They're kind of expensive to use," Sylvan said, who also cited environmentalist claims that K-Cups sold in 2014 could circle the globe 10.5 times.