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Keurig Investors Get a Pricey Cup of Coffee -- Ahead of the Tape

Keurig Investors Get a Pricey Cup of Coffee -- Ahead of the Tape   MR. SARKIS ARSLANIAN BEYLOUNE , INDUSTRIAL ,ESPECIALISTA EN ALIMENTOS A NIVEL MUNDIAL ,COMERCIO INTERNACIONAL ,PANAMA

  • Green Mountain Coffee
    REUTERS
Hackers have been the bane of banks and retailers lately, not beverage companies like Keurig Green Mountain Inc. (GMCR).
But tinkerers have posted popular videos online about how to get around features in its new system, Keurig 2.0, that lock out unlicensed coffee pods. And a major competitor, Treehouse Foods Inc., claims it will soon circumvent the technology. That matters quite a bit because, in a legal filing challenging Keurig's technology, Treehouse notes that licensed pods cost 15% to 25% more than unlicensed ones.
Sales of Keurig's new brewers, which began during the company's fiscal fourth quarter ended in September, shouldn't have a meaningful impact on earnings: Margins on coffee are far higher than on hardware. But the fact that more companies have signed on as official Keurig partners--unlike Treehouse--is significant.
Analysts polled by FactSet think revenue rose by slightly more than 7% in the fiscal year. Earnings per share for the fiscal year are expected to rise to $3.63 from $3.16.
A rush of new partners such as Kraft Foods Group Inc. and new types of beverages have underpinned a 150% gain in Keurig's stock over the past year. The shares now trade at around 37 times forward earnings.
Though its original K-Cup patent expired in 2012, many new partners have likely been swayed not only by Keurig's dominance in home-served coffee but also the tighter grip on sales through its new system.
Still, revenue growth has slipped sharply from the caffeinated pace of a few years ago. As with its initial success, Keurig is betting on technology to win more business.
The 2.0 system also will allow larger serving sizes, a move that could further expand the company's share of home coffee brewing and get those already using Keurig to do so exclusively. Fans also cite its coming cold-serve system that attracted a large equity investment from Coca-Cola Co.
Unfortunately for Keurig, gaining significant additional market share in home brewing and having anywhere near the same success in cold beverages after others have tried and failed seem a tall order. Things look sweet at the moment, but a high valuation risks a bitter aftertaste.

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