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Beverage sector in focus after KO-GMCR deal

  • KeyBanc raises its price target on Green Mountain Coffee Roasters (GMCR) to $150. The investment firm is being listened to after calling out just two months ago the potential for a Coca-Cola partnership with GMCR. Shares of GMCR are up 43.7% premarket to $115.50 - a level last seen in 2011.
  • The deal is a positive for Coca-Cola (KO) as it refreshes its ability to enter a new category with growth potential, says Stephanie Link. If there's a concern, it's with Coca-Cola bottlers (CCE, COKE, KOF) who now have a risk to profitability.
  • Shares of SodaStream (SODA) have recovered nicely from their initial plunge following the KO-GMCR news and are now off only 2.9% premarket. There's plenty of speculation that PepsiCo (PEP) will be tempted to match Coca-Cola's move into home beverage systems with a SodaStream deal.
  • No panic with Starbucks (SBUX), +0.4% premarket, as analysts see the company's comfortable relationship with GMCR unaffected.
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Comments (6)
  • Lbasskin
    , contributor
    Comments (26) | Send Message
     
    I am happy to sell into rally. Anybody remember what happened last time the rumor turned out not to be true? SODA while up $5this morning can drop that in a minute on the wrong rumor. Besides, margins have not improved and Coke/GMCR will be a monster.

     

    Sorry bulls, its time to bail on this one.
    6 Feb 2014, 09:14 AM Reply Like
  • Raymond Wiacek
    , contributor
    Comments (49) | Send Message
     
    Remember last time KO didn't partner with GMCR? There was no reason KO/PEP would buy SODA. But now there is.

     

    Pepsi will be left in the dust if they don't do something about this. Who else could they possibly partner with/buy? SODA is a $750mm company being sold in over 16,000 stores worldwide so the distribution is there, the valuation is cheap (15.5x P/E with 25% revenue growth? Come on... cheap cheap cheap) everything is there... it's turnkey and ready to go.

     

    You're wrong to be selling right now at the bottom, especially at this valuation. You should be buying more.
    6 Feb 2014, 09:30 AM Reply Like
  • lewhite
    , contributor
    Comments (196) | Send Message
     
    Definitely agree with you, Raymond. This deal certainly validates the home soda business whether SODA gets PEP involved or not. Remember, this business has been around in Europe for over 20 years and is still gaining mkt share.
    6 Feb 2014, 10:29 AM Reply Like
  • ConsumerAnalystDude
    , contributor
    Comments (6) | Send Message
     
    I think anyone thinking SODA is now a guaranteed takeout is somewhat deluded.

     

    First off, the major franchises of KO/PEP aren't interested in competing with their core categories and cutting out their bottler partners. They're also not interested in just becoming another 'flavor' in an already extant platform. The 'carbonated' category is in decline in WE and NA and some small growth in the at-home is not 'real growth' but cannibalization. KO-GMCR is a good deal because it opens a segment up to KO to expand the beverage occasions they can reach that they weren't before. PEP partnering with SODA would simply be cannibalizing their core category to sell in an even cheaper, lower volume occasion-segment. There may be some possibility of a SODA takeout simply to subsume them and control the segment -> but that isn't a real growth argument, and sort of simply a 'eat the competition' buyout which I wouldn't consider particularly accretive.
    6 Feb 2014, 02:12 PM Reply Like
  • lewhite
    , contributor
    Comments (196) | Send Message
     
    I don't see why a KO deal with GMCR makes sense and a PEP /SODA doesn't. Pretty much similar situations. Who knows, maybe KO tried to make a deal with SODA and were rebuffed since SODA's stock was at 52 week lows. I don't buy your "logic"
    6 Feb 2014, 05:35 PM Reply Like
  • benitus
    , contributor
    Comments (2136) | Send Message
     
    This deal is over-hyped and subject to heavy manipulation by traders and vultures alike. Should settle around $90 eventually, before it dips further.
    6 Feb 2014, 11:26 AM Reply Like
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