Canaccord doesn't expect the Starbucks' situation to resolve itself until at least spring 2011, but made clear it sees the developing story as "opportunity, not risk." Going into Thursday's report, Wall Street remains largely bullish on the stock with 7 of the 10 analysts covering the shares at strong buy (5) or buy (2). The valuation is starting to look a bit rich, however, with the stock already closing in on the analysts' median 12-month price target of $40, and the shares trading at a forward price-to-earnings multiple of 32X vs. competitor Peet's Coffee & Tea ( PEET) at 26X and Starbucks at 19X. -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron. >To submit a news tip, send an email to: email@example.com
NEW YORK ( TheStreet) -- Green Mountain Coffee Roasters ( GMCR) is perking up ahead of its quarterly report. The Waterbury, Vt.-based coffee company announced after Monday's closing bell that it plans to release its fiscal fourth-quarter results after the closing bell on Thursday. The report has in limbo since Nov. 19 when Green Mountain disclosed the need to restate much of its past numbers to correct a number of different accounting errors. The stock jumped $2.57, or 7.3%, to $37.72 in Tuesday's session following the news. Volume of 8.2 million, nearly double the issue's trailing three-month daily average of 4.5 million. The shares reached a 52-week high of $38.86 on Nov. 30, and at current levels, they're up about 29% year-to-date. Green Mountain shares jumped following the announcement of the restatement as the market fears of problems related to M.Block & Sons, the fulfillment vendor for most of the at-home orders of Green Mountain's Keurig business unit's single-cup business, proved unfounded. The total impact of the restatement was pegged at 4 to 5 cents a share in net income. Canaccord Genuity reiterated a buy rating and $40 price target on the stock on Tuesday, saying it's hopeful the quarter will be a good one. The current average estimate of analysts polled by Thomson Reuters is for earnings of 20 cents a share in the three months ended in Sept. 30 on revenue of $359.2 million. "As opposed to any delayed quarterly report we've encountered in the past, we don't have any concerns that results or business trends are softer than expected but rather confidence that the trends are stronger," Canaccord said in a research note. "The qualitative conclusion we anticipate from the quarterly report is further closure to the accounting questions, which led to unfounded volatility in the shares, will occur." The firm expects both brewer and K-cup shipments will be strong. It anticipates the company will most likely beat its forecast of 1 million brewers, which would reflect year-over-year growth of 41%, and sees "modest upside" to its forecast of 323.6 million K-cups. Margins may be a particular bright spot, Canaccord said. "
We anticipate that the Q4 results provide further support for our belief that margin expansion is greater than investors recognize," the firm said. "While the Q4 could have plenty of additional costs, such as significantly greater audit and legal fees, we anticipate the margin leverage will be obvious and support higher earnings than forecasted."
Canaccord also weighed in on how Green Mountain may be impacted by however the difficulties between Starbucks ( SBUX) and Kraft Foods ( KFT). Kraft filed a injunction on Monday to block Starbucks from ending the relationship between the companies. "While the idea of Starbucks launching its own brewer is a risk, we find this outcome highly unlikely, at least in traditional American coffee," the firm said. "We believe that Starbucks coffee will ultimately be available in a K-cup given that Keurig is the industry standard at this point, and Starbucks has stated its intention to provide Starbucks coffee in every form the consumer desires."