Source: Keurig Green Mountain
Shares of Keurig Green Mountain , a specialty coffee company and developer of a single-serve brewing system, rose fractionally on Monday to close at $70.36, per S&P Capital IQ, despite having its price target taken to the grinder by one Wall Street firm.
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According to an investor note put out by Wedbush Securities on Monday, concerns regarding the slower-than-expected launch for the cold-beverage system (known as the Keurig Kold), rising operating costs, and what Wedbush described as the "successful entrance of unlicensed competitors into 2.0" (the next-generation single-serve system Keurig introduced last year), could stymie the company's growth reacceleration. By this definition, a discount to the Wedbush price target, which was lowered $15 to $85 per share, is warranted. Wedbush kept its "neutral" rating steady on the company.
In addition, Wedbush also cautioned that negative pricing spreads could harm Keurig sales growth moving forward. The research firm cited widening price gaps in its value-oriented pricing category and tightening gaps at the high-end, which could make it tough for Keurig products to stand out at either price point.
The big question that investors should be asking here is whether or not the Wedbush analyst is on point. Is there really only 21% upside to Keurig Green Mountain shares, and should investors take a more tepid growth outlook for the upcoming quarterly results?
Source: Keurig Green Mountain via Facebook.
Personally, I would suggest these concerns have some merit, but they are generally shortsighted.
Arguably the biggest crutch for Keurig Green Mountain is its slow Keurig Kold rollout. In May, Keurig announced a deliberately slow rollout to retailers, with a full ramp-up not expected until the holiday season of 2016. However, considering what happened with SodaStreamand its willy nilly expansion, I think ensuring that the Keurig brand is not cheapened by a hasty rollout will benefit the company in the long run.
I also think it is important to remember how metaphorically and literally invested Coca-Colais with its Keurig partnership. Aside from owning approximately 16% of Keurig Green Mountain, Coca-Cola can use the Kold as a means to further infiltrate American households at a time when consumers are turning away from soda. For Green Mountain, the partnership represents an opportunity to tie its first-in-class single-serve systems with perhaps the most recognized brand in the world. This partnership could be Keurig's easiest means of getting its product into overseas markets.
Overall, I believe these bumps in the road will pass before investors know it, and I consider it a stock that investors with a higher tolerance for risk and longer investing horizon should consider digging into more thoroughly.
The article This Wall Street Firm Just Took Keurig Green Mountain Inc to the Grinder -- Should You? originally appeared on Fool.com.
Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool recommends Coca-Cola and Keurig Green Mountain. The Motley Fool owns shares of SodaStream and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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