The single-serve coffee segment is becoming the most sought after, especially as many prominent players including Starbucks (NASDAQ:SBUX), Wal-Mart (NYSE:WMT) and Sara Lee (NYSE:SLE) have expressed interest to enter this segment. Convenience, affordability, ease of usability and high-quality coffee at home are the key drivers behind the growth in the single-serve coffee industry. Green Mountain Coffee Roasters (NASDAQ:GMCR) is a dominant player in the U.S. single-serve coffee market controlling more than three-quarters of the market and around 8% globally.
According to a recent announcement, Starbucks and GMCR have agreed to expand their partnership for manufacturing, marketing, distribution and sale of Starbucks-branded Vue packs for use in GMCR’s recently introduced Keurig Vue Brewer. ((Starbucks and Green Mountain Coffee Roasters Inc. Expand Strategic Relationship, Company Website)) In the beginning of the month, Starbucks announced plans to enter the single serve segment with the launch of its new coffee maker, Verismo. This announcement led to more than 15% drop in GMCR’s stock price.
We believe the recent announcement to expand their ongoing relationship will relieve some anxious investors who were wary of Starbucks entry to this segment. Investors reacted positively to this news, with the stock price jumping 10% following the announcement on March 21st.
We have a price estimate of $82 for Green Mountain Coffee Roasters, implying a premium to the current market price.