Analyst: K-Cups Are No Fad

• By the tickerspy.com Staff
• On 9:40 am EDT, Tuesday September 29, 2009

After Diedrich Coffee (NASDAQ: DDRX - News) exploded from 30 cents a share to highs above $25 in 2009, an analyst sees even more room to the upside.

Roth initiated coverage on Diedrich with a Buy rating and a $35 price target. The analyst cited the early stage growth of single-serving coffee makers, which it believes will become a mass-market product. Diedrich should benefit as K-Cup portion packs penetrate the grocery store market, which accounts for more than half of coffee sales for home consumption, according to Roth.

At a price of 11.5 times estimated fiscal 2011 EPS and 7.5 times EBITDA, Roth sees Diedrich as a value play. Based on those fundamentals it is cheaper than any other major coffee roaster company.

Diedrich has carried the Coffee Stocks Index for much of 2009, but the stock actually turned negative over the last three months. Meanwhile, four other coffee companies tacked on double-digit gains.

Roth's bullish stance on Diedrich also bodes well for Green Mountain Coffee Roasters (NADAQ: GMCR) which started the K-Cup craze with their single serving coffee packs and Keurig roasters. Green Mountain's 55% six-month rally doesn't quite compare to the more than 4600% run by Diedrich, but over the last three months it outperformed all but one of the Indexes other components, up by 25%.

Starbucks (NASDAQ: SBUX - News) added 40% over the last three months, putting it ahead by 75% in the last six. The Seattle-based coffeehouse chain is looking to grab its share of the single-serving coffee market with its new Via instant coffee line.

Other coffee plays, Peet's Coffee & Tea (NASDAQ: PEET - News), Caribou Coffee (NASDAQ: CBOU - News), and Farmer Brothers (NASDAQ: FARM - News) are ahead over the last week.

Prior to Tuesday's open, the Coffee Stocks Index is one of the 25 worst-performing tickerspy Indexes over the last month.

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