Wedbush On Keurig Green Mountain Ahead Of Q4 Results: 'Limited Upside Remains'

• The share price of Keurig Green Mountain Inc GMCR has declined 67.63 percent year to date, reaching a low of $4.49 on November 16.
• Wedbush’s Phil Terpolilli has reiterated a Neutral rating on the company, while lowering the price target from $60 to $50.
• Although most of the challenges facing the company appear to be priced into the stock, Terpolilli believes that there is limited upside to the stock.

Analyst Phil Terpolilli mentioned that the company is scheduled to report is 4Q15 results on November 18. However, Keurig Green Mountain is expected to have witnessed weak K-Cup volume trends, along with an unfavorable mix, which is likely to have impacted profitability for the quarter.

“Despite lower coffee prices and cost saving initiatives, GMCR was still unfavorably hedged in 4Q15, while cost savings should not provide a notable benefit until FY16,” Terpolilli stated.

Wedbush’s October 2015 survey suggested that the price gap between brands owned by the company and premium partner brands had narrowed.

According to the Wedbush report, “Negative price spreads between GMCR brands and private label or high-brand-equity offerings is likely to drive shifted consumer purchase patterns towards these offerings, a net negative for GMCR’s top- and bottom-line.”

In addition, TreeHouse Foods Inc. THS has indicated that incremental K-Cup contracts in future would be shared between different manufacturers, which Terpolilli said would be “a future net negative for GMCR who previously maintained several exclusive contracts.”

The 4Q15 EPS estimate has been lowered from $0.74 to $0.71, while the revenue estimate has been lowered $13 million to $1 to 1.035 billion.