UBS Says Keurig Green Mountain 'Story Gone Stale'; Downgrades Shares

In a report published Friday, UBS analyst Stephen Powers downgraded the rating on Keurig Green Mountain, Inc. GMCR from Buy to Neutral, while reducing the price target from $114 to $86. The analyst expressed concern regarding the company's growth prospects, while asserting that the stock still offered an attractive opportunity. Although there are several execution challenges facing the company, the analyst believes that Keurig Green Mountain has long-term growth potential. According to the UBS report, "execution issues are now apparent on three fronts and will likely take time to resolve: 1) smoothing the consumer transition to 2.0; 2) reviving the GMCR-owned K-Cup franchise; 3) making KOLD more mass-market accessible." If only one of these challenges were faced by the company, the chances of rapid success would have been present. One of the key issues facing the company is turning brewer sales around in its core Hot business. For now, the underlying reviews of 2.0 are depressed, without signs of any increase in momentum until after the holiday season. In addition, the company is witnessing increased share losses for K-Cups, leading to price cuts of 10-20 percent. "While GMCR's KOLD technology is promising (functionally speaking), we think any upside is unlikely to accrue until at least FY17 (given investment needs, high initial price-points, deliberate launch plans)," Power said.