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Starbucks, Green Mountain: K-Cup Deal

Despite Tassimo's success with some consumers, Green Mountain's Keurig brewing system enjoys market share of around 80%, according to Reuters, dominating other competitors as well, including Sara Lee's (SLE) Senseo brewer and Nestle SA's (NSRGY) Nespresso system.

Following Thursday's Starbucks-Green Mountain announcement, Van Winkle reiterated his buy rating on Green Mountain shares, noting that "we expect several years of rapid growth before household penetration rates of single-cup coffee brewing begin to mature."

Standard & Poor's restaurant analyst Erik Kolb raised his 2012 earnings estimates for Starbucks and increased his price target on the stock following the Green Mountain partnership announcement.

"We favorably view the alliance, and think this will significantly raise SBUX's presence in the growing single-cup segment, as well as further SBUX's efforts to enter new consumer markets," Kolb noted. "We are also encouraged to hear SBUX K-Cups will likely be available at a large variety of retailers in fall '11."

Kolb now expects Starbucks to earn $1.79 per share in 2012, up from his prior estimate of $1.71. He raised his price target on the stock by $3 to $41.

Analysts' consensus was for Starbucks to earn $1.77 per share in 2012, based on the average call of 22 analysts polled by Thomson Reuters.

Starbucks and Green Mountain said the new Starbucks and Tazo K-Cups will be available through food, drug, mass, club, specialty and department store retailers throughout the U.S. and Canada later this year.

By 2012, the companies expect the K-Cups and Keurig brewing machines to be available in Starbucks stores, and plan to offer customers the Starbucks K-Cups through Green Mountain's consumer-direct Web sites and Starbucks consumer-direct Web site.

"Today's announcement is a win for Starbucks, a win for GMCR and most importantly a win for consumers who want to enjoy Starbucks coffee with the Keurig Single-Cup Brewing system," said Starbucks CEO Howard Schultz on the day of the Green Mountain partnership announcement. "Our research shows that more than 80% of current Starbucks customers in the U.S. do not yet own a single-cup brewer and our relationship will enable Starbucks customers to enjoy perfectly brewed Starbucks coffee at home, one quality cup at a time."

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