TheStreet Ratings

) --

Green Mountain Coffee Roasters


is scheduled to report quarterly earnings after the market close on Wednesday. Analysts are expecting the specialty coffee provider to benefit from new partnerships with coffee giants

Dunkin Donuts

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Green Mountain is expected to report a fiscal third-quarter profit of 37 cents a share, compared with a profit of 11 cents in the year-ago quarter. Revenue is estimated to nearly double to $607 million from $309 million a year ago, according to a poll of analysts by Thomson Reuters. The company should continue to gain from increased penetration of its Keurig machines and disposable K-Cup coffee filters.

The following is taken from a fiscal second-quarter report published by

TheStreet Ratings

, an independent-research unit of


that uses a quantitative model to evaluate stocks.

Green Mountain reported significant earnings per share improvement 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 Mountain increased its bottom line by earning 55 cents versus 47 cents in the prior year. This year, the market expects an improvement in earnings ($1.48 versus 55 cents).

We rate Green Mountain Coffee Roasters a buy. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. Our model has a price target of $120 on shares of Green Mountain, offering the potential for 32% upside from current levels.

The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, robust revenue growth, good cash flow from operations, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had generally poor debt management on most measures that we evaluated.

Powered by its strong earnings growth and other important driving factors, this stock has surged by over 200% the past year, significantly outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

>>For upcoming earnings and estimates, see our

Earnings Calendar


Green Mountain's gross profit margin for the second quarter of its fiscal year 2011 has increased when compared to the same period a year ago. Even though it increased sales and net income significantly, the company was unable to grow at a faster pace than its industry competitors.

Of some concern is Green Mountain's liquidity position. Currently, the Quick Ratio is 0.91 which shows a lack of ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year.

From a valuation perspective, Green Mountain's current price-to-earnings ratio indicates a significant premium compared to an average of 23.28 for the Food Products industry and a significant premium compared to the S&P 500 average of 16.45. For additional comparison, its price-to-book ratio of 12.46 indicates a significant premium versus the S&P 500 average of 2.21 and a significant premium versus the industry average of 3.54. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium.

Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.