Green Mountain Coffee: More Accounting Issues Ahead?

NEW YORK (TheStreet) -- After Green Mountain Coffee Roasters (GMCR) announced the planned restatement of financial earnings for several fiscal years last Friday, TheStreet spoke with our Market Movers portfolio manager Ken Shreve about whether the stock was still a good trade and whether more accounting issues should be expected.

Coffee Stock Poised to Pop

TheStreet: GMCR has restated its financial statements for a number of fiscal years and quarters in light of the recent Securities and Exchange Commission investigation into its revenue recognition practices. Should we be bracing for more accounting issues ahead?

Shreve: "You know, I don't think so. I think this resolution came much quicker than Wall Street had anticipated. The news could have been much worse. They found some discrepancies that looks like it's going to impact earnings, by 4, 5 cents a share. So judging by the stock's reaction on Monday, I think it was up close to 18% -- its technical picture went from looking really, really bad; there were clear signs of institutional selling. Investors were worried this was going to be a really long, drawn-out process -- but the quick restatement most likely means this SEC inquiry is going to end as an informal one. It's peeled away a significant amount of uncertainty in the stock and I'm more positive on the stock certainly than I was last week."

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TheStreet: What do you think of GMCR's valuation right now? Is it cheap? Expensive?

Shreve: "It's always been a high multiple stock, but this is a company that really has a bona fide track record of growth. It has displayed very strong year-over-year growth. Recent quarterly results have been outstanding. The stock was trading at 69x trailing earnings and 30x forward earnings. But again, this is a company that's expected to grow annual earnings this year 87% from 2009, and then you look out into 2011, and they're expected to grow earnings 66% from 2010. So when you look at a 30x forward multiple, arguably, the stock is still cheap."

"So valuation wise, it looks expensive, but I think investors are going to need to remember this is a very fast-growing company with a good track record of growth, and it looks like growth is expected to continue over the next several quarters."

Investors previously expected Green Mountain Coffee Roasters to report fourth-quarter earnings on or around Nov. 11. But in its statement on the restating of financial records last Friday, the Green Mountain said it now expects to file its 10-K annual report, including restated financials, no later than the Dec. 9 deadline for an accounting extension period. The company says it can't guarantee the filing will be made within this period.

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-- Written by Andrea Tse in New York.



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