Keurig Green Mountain (GMCR, Financial) has done very well in 2014. The company's important partnerships and new products are its growth drivers. Another striking fact about Keurig is its strong free cash flow, which is strong enough to attract shareholders and investors who are looking for a dividend-paying stock in the industry. Keurig has paid approximately $800 million in the form of dividend and share repurchase programs while maintaining a burly $1.1 billion of cash. This will certainly provide financial flexibility to the company and help her to invest in many new growth opportunities that lie ahead. In addition, Keurig Green Mountain has decided to pay cash dividend of $0.25 per share on August 1, 2014.
Making good progress
Keurig Green Mountain continues to make progress as it focuses on key transition, executed on its Keurig brewers system in portion pack segment. The company will be introducing new Keurig 2.0 hot brewers in the ongoing quarter as a part of its consistent efforts towards adding new brands to its brewers system to enhance its profitability. It expects significant growth opportunity for new Keurig 2.0 hot brewer pack in North America and on the global front as well. The new Keurig 2.0 hot brewers will have more than 250 varieties that are available with Keurig system at present, thus creating enough market opportunity for the company to expand further in the market.
Besides Keurig Green Mountain has brought in new beverage optimization technology in its Keurig 2.0 brewers as it also introduced interactive capabilities that will allow the customers to brew a carafe with the same quality and one-touch simplicity as a single cup, just what consumers have been asking for. This single-cup brewing will create a winning combination for the company as it enhances its capability, and customers now will be able to perfectly brew the beverages regardless of the size or type.
In addition, the company will also be launching its Keurig Cold System new products in the beginning of 2015. This continued investment in its innovation across all the division of its business ranging from product development to merchandising will construct strong pipeline for its new products and definitely put up strong financial and operating background for the company in the coming quarters. The Keurig 2.0 Cold Brewers will be produced in its new Keurig production center in Vermont, where the company plans to start its cold production lines.
Research and development in focus
Apart from this, the company is also getting a lot of benefits as it continuously invests in R&D that will enable multiple platforms for the company and result in incremental growth. This consistent investment has also helped the company get connected with many new partners due to its ACV advantage and leadership in the industry.
Also, the company plans to broaden its relationship with J.M. Smucker's (SJM, Financial) and extends hands with Starbucks (SBUX, Financial). It also added Peet’s, as a new partner in its healthy system that is fed with strong brands. Further, the company also added Krispy Kreme Doughnuts (KKD, Financial) to its system and has welcomed long-term partner Lavazza to the Keurig K-Cup system, one of the Italy’s favorite coffee brands, to Keurig consumers. Hence Keurig Green Mountain is committed to offering ever-expanding variety of the world’s finest beverages to its customers across the world.
The company is also investing $58 million in capital expenditure in the current quarters; the company also expects its inventories and the rate of capital investment to significantly rise in the second half of FY 2014, as it prepares to introduce new products. Holidays 2014 will be completing implementation of SAP. Hence it leaves a lot of room to grow for the company in the coming years.
Conclusion
Keurig Green Mountain currently trades at trailing P/E of 31.77 and forward P/E of 27.88. The company has excellent operating margin of 19.05%, while return on equity is 19.13%. Also, Keurig’s total outstanding debt remains at $273.92 million, which is well mixed by most measures. It has total levered-free cash flow of 663.09 million and has solid operating cash flow of $1.11 billion. The analysts have predicted CAGR of 17.00% higher than that of industry’s CAGR of 13.79% for the next five years reflects a great opportunity for the stock in coming years. Though the stock is little expensive, however it is great pick as it has solid outlook for the coming years that will certainly provide great return and increase shareholders value in the long time.
