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Why Keurig Green Mountain (GMCR) Is Popping on Friday

Stocks in this article: GMCR SBUX

NEW YORK (TheStreet) -- Keurig Green Mountain (GMCR) is surging on Friday after announcing a multi-year partnership with Peet's Coffee & Tea and reworking its deal terms with Starbucks (SBUX).

By early afternoon, shares had climbed 7.9% to $114.53.

The company, which recently changed its name from Green Mountain Coffee Roasters, said it had entered into a manufacturing and distribution agreement for Peet's-branded packs made for Keurig's home-brewing system. The selection is planned for release by the end of the summer.

Financial terms of the agreement were not disclosed.

"We're thrilled to bring Keurig consumers and Peet's lovers the choice of Peet's premium specialty coffees and teas as part of the continually growing Keurig family of brands," said Keurig CEO Brian Kelley in a statement.

Separately, Keurig said it has revised the terms of its five-year agreement with Starbucks. The companies have eliminated the terms of exclusivity related to the super-premium coffee K-Cups, while Starbucks will receive improved business terms including an expanded Starbucks K-Cup range.

"This advancement advances Starbucks' commitment to strengthening its global leadership position in the nearly $8 billion premium single-cup coffee category," said Starbucks group president of channel development and emerging brands John Culver in a statement.

"This amended agreement creates more favorable business terms for both companies and allows us to build upon our strong relationship," added Mark Wood, Keurig SVP of global hot systems.

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TheStreet Ratings team rates GREEN MTN COFFEE ROASTERS as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate GREEN MTN COFFEE ROASTERS (GMCR) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, impressive record of earnings per share growth and compelling growth in net income. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GMCR's revenue growth has slightly outpaced the industry average of 0.7%. Since the same quarter one year prior, revenues slightly increased by 3.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • GMCR's debt-to-equity ratio is very low at 0.10 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, GMCR has a quick ratio of 1.63, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Food Products industry and the overall market, GREEN MTN COFFEE ROASTERS's return on equity exceeds that of both the industry average and the S&P 500.
  • GREEN MTN COFFEE ROASTERS has improved earnings per share by 30.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GREEN MTN COFFEE ROASTERS increased its bottom line by earning $3.16 versus $2.28 in the prior year. This year, the market expects an improvement in earnings ($3.66 versus $3.16).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Food Products industry average. The net income increased by 28.5% when compared to the same quarter one year prior, rising from $107.58 million to $138.23 million.

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