Coke Takes Another Sip of Keurig - Analyst Blog

Shares of specialty coffee retailer Keurig Green Mountain Coffee Inc. GMCR soared almost 8% higher after media reports stated that beverage giant The Coca Cola Company KO is planning to increase its stake in the company to 16%.

This is an extension of the deal closed on Feb 27, 2014, under which Coca Cola took over 10% stake of the coffee maker for $1.25 billion at $74.98 per share.

The Deal

In early February, Keurig Green Mountain announced a 10-year partnership deal with Coca Cola as part of its strategy to step into the world of cold beverage and soda with its new, ‘The Keurig Cold Machine' that makes sodas, sports drinks and other beverages at home using specially-designed pods. 

Under the deal, the former will exclusively make Coca-Cola-branded pods to be used on the Keurig Cold at-home beverage system. The two companies will also work on the development and launch of this latest version of Keurig single-cup brewer.

Win-Win Deal for Both

For Keurig Green Mountain, this is a great opportunity to leverage Coca Cola's branding and global presence. The expansion into cold beverages is an obvious growth prospect for the coffee maker which is also the leader among makers of single-cup coffee brewing systems used in offices and homes. Since coffee preferences vary from country to country, the global appeal of soda and carbonated beverage drinks will help Keurig Green Mountain target a larger customer base than Keurig brewers.

For Coca Cola, the deal paves its way to enter the growing ‘single-serve at home' channel. The deal opens up an exciting new packaging format for Coca-Cola brands.

Other Stocks to Consider

Both Coca Cola Keurig Green Mountain carries a Zacks Rank #3 (Hold). Another stock in the consumer staples  sector worth considering include Pinnacle Foods Inc. PF and The Hain Celestial Group Inc. HAIN both sportinga a Zacks Rank #2 (Buy).