Zacks initiates coverage Jammin Java with an Outperform rating

Zacks Small Cap Research

Today, Zacks initiated coverage of Jammin Java (JAMN) with an Outperform rating and a target of $0.56. Jammin Java is a growth company in the premium coffee industry. The company is a producer, marketer and distributor of sustainably-grown, ethically-farmed, artisan-roasted premium coffees sold under the brand name of Marley Coffee. All the company’s coffees are positioned as USDA Organic, Fair Trade Certified and/or Rainforest Alliance Certified. Management is executing a strategy of geographic expansion through multiple distribution channels, which is driving dramatic, triple-digit, year-over-year revenue growth. The company is expanding through traditional retail and distribution channels (such as retail grocery, online sales, Office Coffee Service, independent distributors and foodservice) as well as pursuing innovative relationships, such as Kiosk vending.  Management has successfully introduced new products (particularly RealCups™) and implemented unique marketing programs.

Jammin Java was founded in February 2008 by Rohan Marley, son of reggae entertainer Bob Marley, as Marley Coffee Inc. Through a series of business development initiatives, Marley Coffee Inc. has been transformed into Jammin Java Corp. Rohan’s vision is to produce and acquire sustainably-grown coffee and market the artesian-roasted beans under the Marley Coffee brand, which reflects the personality of Bob Marley. Rohan Marley acts as a brand ambassador for the many Marley licensed brands, including Marley Coffee.

In June 2009, Marley Coffee began to offer bags of whole bean coffee, primarily online. Today, Jammin Java provides multiple formats of coffee (whole bean, ground, RealCups™, pods, fractional packages) and tea through numerous channels of distribution. The company is targeting a specific market niche within the specialty gourmet coffee industry that wishes to support sustainable farming practices while enjoying premium and super-premium specialty coffees. All Marley coffees are composed of quality Arabica coffee beans that are organically grown and ethically farmed.

Management’s core business model involves the implementation of a multi-channel geographic penetration strategy. Geographically, the company’s operations were concentrated in the western US and western Canada until 2012, when the company entered into a multitude of relationships across the US, Canada and overseas. Sales cycles for national grocery and retail chains can be very long, and the efforts made to broaden distribution last year came to fruition this year. Over 12 new distribution agreements have been announced over the past few months, including with the major grocery retailers of Kroger and Safeway. There continues to be ample opportunities for increased penetration into the channels of distribution in terms of both depth and breadth.

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Other significant events in the development and evolution of the distribution of Marley coffees and teas include 1) the amended license agreement that consolidated all Marley Coffee and Jammin Java products under one cohesive development program (in August 2011), 2) the acceleration of the OCS effort through the distributor agreement with National Coffee Service & Vending (April 2011) and the subsequent product introductions of coffee and tea pods (April 2011), 3) the decision to market 8 oz. bags of ground coffee (November 2011) and the development of RealCups™, which began shipping in November 2011. In this milestone event, Jammin Java expanded into the single-serve arena with a new line of coffee and tea products compatible with Keurig K-Cup brewer systems. The addressable market radically increased to tremendous opportunities, especially in the retail and office coffee service (OCS) distribution channels. The proliferation of Keurig K-cup machines and other Keurig compatible brewers that brew single-serve beverages was an important driver of the growth in premium coffee consumption over the last five years. The response to the introduction of Real Cups was overwhelming with over 500,000 RealCups being shipping during the first month of distributing the single-serve product. Many subsequent retail and OSC relationships were subsequently announced.

Today, Jammin Java / Marley Coffee offers 8.0 oz. (retail) and 2 lb. (food service) whole bean and ground coffee bags of Get Up Stand Up, Mystic Morning, Lion’s Blend, Buffalo Soldier, Kingston City Roast, Lively Up! and Simmer Down. Recently, Marley Coffee announced the product launch of Smile Jamaica, a blend of 20% Jamaican Blue Mountain and 80% of Rainforest Alliance Certified coffee. The blend will be available in RealCups and 8 oz. bags. The company’s custom blends add depth of flavor and complexity to the coffees as does a variety of roasts that cover the range continuum, providing each coffee with a unique flavor, aroma and color when brewed. Also, three single-source coffees are offered: One Love (Ethiopian Yirgacheffe), Talkin Blues (100% Jamaica Blue Mountain) and Top Rankin (100% Grade 1 Jamaica Blue Mountain).

Our price target is based on price-to-sales (P/S) valuation methodology. Jammin Java is a small-capitalization company, currently with negative profitability, but with an expected sales profile that should continue to grow rapidly as the company’s coffee products begin to appear on more grocery shelves and the OCS channel increases brand awareness. Price-to-sales valuation incorporates the company’s ability to generate revenues with the expectation that ultimately the growing revenue stream will manifest itself into positive earnings when the break-even point is surpassed.

Jammin Java’s revenue profile is expected to continue experiencing rapid growth since the significant distribution agreements with the major grocery chains of Safeway and Kroger are relatively recent. In the valuation process, it is important to incorporate a mechanism which takes into account that Jammin Java is experiencing triple-digit revenue growth. The P/S valuation range for comparable coffee-related companies with moderately growing sales profiles (relative to Jammin Java) is between 2.9 and 7.3 times TTM revenues. Currently, Starbucks, Green Mountain Coffee Roasters and Tim Hortons are trading between 3.6 and 4.0, with a mean P/S valuation of 3.8 times. Since Jammin Java has the potential and is expected to generate meaningful increased revenues over the upcoming quarters, our price target is based on a price-to-sales ratio valuation using estimated forward revenues. Given the company’s exposure to the attractive premium coffee industry, extremely strong revenue growth exhibited by reported financial results and rapidly growing grocery-store presence, we are projecting TTM revenues of $13.5 million through April 2014. Based on evaluating current price-to-sales multiples of comparable companies within the industry and an expectation that Jammin Java will be valued at 4.0 times projected TTM sales, our target for Jammin Java is $0.56.

A copy of the latest research report can be downloaded here >> 
 Jammin Java Report

Please visit 
SCR.Zacks.com for additional information on our research and coverage universe, and Subscribe to receive our articles and repoing shipping during the first month of distributing the single-serve product. Many subsequent retail and OSC relationships were subsequently announced.

Today, Jammin Java / Marley Coffee offers 8.0 oz. (retail) and 2 lb. (food service) whole bean and ground coffee bags of Get Up Stand Up, Mystic Morning, Lion’s Blend, Buffalo Soldier, Kingston City Roast, Lively Up! and Simmer Down. Recently, Marley Coffee announced the product launch of Smile Jamaica, a blend of 20% Jamaican Blue Mountain and 80% of Rainforest Alliance Certified coffee. The blend will be available in RealCups and 8 oz. bags. The company’s custom blends add depth of flavor and complexity to the coffees as does a variety of roasts that cover the range continuum, providing each coffee with a unique flavor, aroma and color when brewed. Also, three single-source coffees are offered: One Love (Ethiopian Yirgacheffe), Talkin Blues (100% Jamaica Blue Mountain) and Top Rankin (100% Grade 1 Jamaica Blue Mountain).

Our price target is based on price-to-sales (P/S) valuation methodology. Jammin Java is a small-capitalization company, currently with negative profitability, but with an expected sales profile that should continue to grow rapidly as the company’s coffee products begin to appear on more grocery shelves and the OCS channel increases brand awareness. Price-to-sales valuation incorporates the company’s ability to generate revenues with the expectation that ultimately the growing revenue stream will manifest itself into positive earnings when the break-even point is surpassed.

Jammin Java’s revenue profile is expected to continue experiencing rapid growth since the significant distribution agreements with the major grocery chains of Safeway and Kroger are relatively recent. In the valuation process, it is important to incorporate a mechanism which takes into account that Jammin Java is experiencing triple-digit revenue growth. The P/S valuation range for comparable coffee-related companies with moderately growing sales profiles (relative to Jammin Java) is between 2.9 and 7.3 times TTM revenues. Currently, Starbucks, Green Mountain Coffee Roasters and Tim Hortons are trading between 3.6 and 4.0, with a mean P/S valuation of 3.8 times. Since Jammin Java has the potential and is expected to generate meaningful increased revenues over the upcoming quarters, our price target is based on a price-to-sales ratio valuation using estimated forward revenues. Given the company’s exposure to the attractive premium coffee industry, extremely strong revenue growth exhibited by reported financial results and rapidly growing grocery-store presence, we are projecting TTM revenues of $13.5 million through April 2014. Based on evaluating current price-to-sales multiples of comparable companies within the industry and an expectation that Jammin Java will be valued at 4.0 times projected TTM sales, our target for Jammin Java is $0.56.

A copy of the latest research report can be downloaded here >> 
 Jammin Java Report

Please visit 
SCR.Zacks.com for additional information on our research and coverage universe, and Subscribe to receive our articles and reports emailed directly to you each morning.

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