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Keurig Green Mountain Inc (NASDAQ:GMCR) Crushed Despite Partner Brand Growth

Kuerig Green Mountain Capsules

Keurig Green Mountain Inc shares fell by more than 5 percent on Thursday as traders lose faith in the firm’s ability to grow through 2015. Williams Capital analyst Marc Riddick cut his price target on the firm this morning to $63, down from a whopping $151, as the firm is still struggling to manage its sales.

Kuerig Green Mountain Capsules

Mr. Riddick reckons that shares are still a Buy however, and says that the firm’s partner brands are likely to grow faster than K-cups themselves. He also reckons that people in the US will stay buying more coffee and “Keurig Green Mountain remains a vital participant in the long-term growth of single-serve beverage consumption with K-Cups continuing to be a meaningful growth driver” for coffee drinking.

Keurig Green Mountain Inc collapses

This morning’s downgrade appears to have brought on a bout of dismay among those still holding shares in Keurig Green Mountain . At time of writing, 12:25 EDT, shares were selling for 49.87, down 5.71 percent for the day so far. 

Mr. Riddick’s outlook for the firm may have involved a dramatic price target cut, but he’s far from the only Wall Street voice that has called for an end to massive growth in the value of Keurig Green Mountain Inc. The firm’s poor earnings report, which was published on August 6, brought on a spate of downgrades and warnings to stay away from the stock.

Goldman Sachs analyst Judy E. Hong put a $66 price target on shares after earnings were published and said that the stock would be “range-bound until a fundamental inflection point becomes more visible.” The June report, said Hong, appeared to push that point further away, though she was not completely negative on the stock.

The downgrade did force her to remove Keurig Green Mountain from Goldman’s Americas Buy List, and she said that a further cut to guidance would be “difficult to defend.”

Staying hopeful on Keurig Green Mountain

Both Riddick and Hong seem sure that Keurig Green Mountain faces huge issues right now, but both are also hopeful about the future of the firm. Hong said that “(1) GMCR can grow the installed base on Hot, (2) margins should stabilize longer-term, and (3) Kold should provide incremental sales and profit over time.”

Riddick thinks that the whole coffee market in the US is going to grow, and Keurig Green Mountain will be able to grow itself as the market becomes bigger. The firm has found partners with brands like Starbucks and Dunkin Donuts, and the sales of their own-brand K-Cups should give users of the Keurig more options and help drive demand, he thinks.

Mr. Riddick reckons that though the Keurig K-Cups will lose market share, the firm’s coffee machines will be an important way for coffee shops and brands to reach out to customers.

It’s clear from today’s price action that most on Wall Street aren’t willing to buy into his vision for the future of the firm. Coffee prices may be set for a rise from record lows, and that could hamper margin growth, and sales growth, in the months and years ahead.

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