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Green Mountain Upgraded to Strong Buy

Kalyan Nandy

Rising earnings estimates on the back of strong fiscal fourth-quarter 2012 results –– including a 36.2% earnings surprise –– and an enhanced guidance for fiscal 2013 helped Green Mountain Coffee Roasters Inc. (GMCR) achieve a Zacks #1 Rank (Strong Buy) on November 30. Moreover, this well-known coffee maker delivered positive earnings surprises in 3 of the last 4 quarters with an average beat of 36.3%.    

The stock is currently trading at a 48.5% discount to its 52-week high of $71.15. With a discounted price and long-term expected earnings growth rate of 17.9%, this stock offers an attractive investment opportunity.

What Makes It Hot?

Green Mountain reported fiscal fourth-quarter (ended September 29) results on November 27. Non-GAAP earnings per share came in at 64 cents, surpassing the Zacks Consensus Estimate and year-ago earnings of 47 cents by 36.2%. Due to a unique calendar shift, the quarter included an additional week, which contributed about 7 cents to the earnings.

Earnings were primarily aided by a solid top-line growth of 33.0% and a 15.2% decrease in interest expense. For fiscal 2012, the company generated $76.7 million in free cash flow versus cash outflow of $282.7 million a year ago.   

Based on its progress, the company raised its earnings per share projection for fiscal 2013 to $2.64–$2.74 from $2.55–$2.65. However, its net sales guidance –– growth between 15% and 20% over fiscal 2012 –– was reiterated.

Estimate Revisions Confirm Strength

The Zacks Consensus Estimate for fiscal 2012 increased 6.4% to $2.66 per share on the back of 10 out of 11 upward estimate revisions over the last 30 days. The current estimate is within the guidance range provided by Green Mountain.

For fiscal 2014, 4 out of 7 estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 13.8% to $3.05 per share.

Among other coffee makers, Farmer Brothers Co. (FARM) carries a Zacks #1 Rank (Strong Buy) and Starbucks Corporation (SBUX) holds a Zacks #2 Rank (Buy).

Read the Full Research Report on GMCR

Read the Full Research Report on SBUX

Read the Full Research Report on FARM

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