Peet's Could Benefit from Starbucks-Kraft Split

NEW YORK (TheStreet) -- The divorce of Starbucks(SBUX) and Kraft Foods(KFT) may yet prove lucrative, at least for Peet's Coffee & Tea(PEET).

Kraft and Starbucks continued to trade in negative territory Tuesday after the former challenged the latter's decision to terminate their 12-year supermarket distribution partnership. The schism could benefit coffee up-and-comer Peet's, according to Stifel Nicolaus analyst Steve West.

>> Kraft Challenges Starbucks; Shares Fall

"(When) Starbucks and Kraft part ways, we believe Peet's could be a nice fit to deliver Starbucks into the distribution business," he noted Tuesday morning while conceding that "we have no knowledge of any M&A negotiations or discussions between Peet's and Starbucks or any other party."

The analyst speculated that Peet's stock, currently trading around $38, could garner as much as a 40% premium to recent pricing, pushing it up as high as $54, with EV-to-EBITDA, or enterprise value to earnings before interest, taxes, depreciation and amortization, to about 13.5 times his fiscal 2011 estimates.

"It appears Starbucks prefers a distribution agreement to maximize profit and minimize risk (similar to current KFT agreement only with more of the profits), however, this may not be viable now that the SBUX/KFT disagreement has become so public and negative," West wrote.

West purported that Starbucks must do one of three things:

Find a new distribution partner, a likely scenario with less risk and lower profits.

Acquire distribution capabilities, less likely with moderate risk and maximum profit potential.

Establish its own distribution capability, unlikely given the high risk, despite maximum profit potential.