Earnings Preview: Can Green Mountain Coffee Roasters Regain Its Mojo?

Green Mountain Coffee Roasters GMCR is set to report its first quarter earnings results after the closing bell on Wednesday. Wall Street analysts have consensus earnings per share estimates of $0.36 for the company. The high estimate is $0.40 with a low estimate of $0.30. In the year ago quarter, GMCR reported EPS of $0.18. Estimates taken from Estimize.com suggest that traders are looking for upside to Street consensus with users projecting that GMCR will report EPS of $0.41. Estimize is a unique new tool which allows traders and investors to get a better idea of what the "whisper number," or real earnings expectations are for a company. The site does this by aggregating estimates from its users and generating a consensus EPS estimate based on this data. Frequently, the "whisper number" is a better gauge of likely sentiment after the earnings numbers are released compared to Wall Street estimates which have a tendency to be on the conservative side. It is not uncommon to see a stock trade off sharply despite beating Street estimates if the numbers come up short of the whisper estimates. Over the last 3 months, EPS estimates for GMCR are up $0.01 from $0.35. During this time, the stock has fallen 17%. On the revenue front, analysts have consensus estimates of $1.06 billion for GMCR. The high estimate is set at $1.08 billion with a low estimate of $990.80 million. In the year ago period, GMCR reported sales of $575.03 million. Despite a scorching growth rate, GMCR has recently fallen on (relatively) hard times. Over the last 6 months, shares have fallen more than 48%. The stock has been one of the most volatile names on the Nasdaq as a result of a number of different factors. First, GMCR's tremendous growth metrics pushed up its valuation to dizzying heights in the summer and fall of 2011. At its peak, the stock traded as high as $115.98, compared to $53.30 today. Despite the company's awesome track record and incredible top-line growth, at prices above $100, the market appeared to have priced in a level of irrational exuberance. This fact was exacerbated in October when noted short-seller and value investor David Einhorn gave a presentation on the company at the Value Investing Congress. The hedge fund manager revealed that his fund, Greenlight Capital, had established a large short position in the stock. Speaking about Green Mountain's Keurig single-cup coffee brewers, Einhorn said, “I believe the available market is smaller than the bulls believe it to be and that Green Mountain has already penetrated a good chunk of it." He also argued that the consensus argument for GMCR's future earnings power was way too optimistic. In the wake of Einhorn's presentation, GMCR shares, which had already been falling, began to plunge. In the near-term, Einhorn's thesis on the stock appeared to have been partially validated, as GMCR reported very disappointing earnings on November 9, 2011. In the wake of the report, the stock plummeted another 32%. Since that report, GMCR has been stabilizing between the low $40 range and the mid $50s. Tomorrow's report will be critical in determining the near-term direction of the stock as well as sentiment around the name. While the last few months have been rough on GMCR shareholders, it is important to put things into perspective. Despite the sell-off, GMCR is still up almost 59% over the last 52-weeks - which is rather unreal seeing as how the stock is currently trading at less than 50% of its 52-week high. Also, it should be noted that GMCR was the best performing stock during the 2000-2010 period and the shares are up 1,174% over the last 5 years and 2,669% over the last 10 years. The bottom line is that despite the near-term turbulence in the share price, GMCR has been an excellent investment over the long-run. Furthermore, at current levels, GMCR may be poised for more explosive upside. The stock trades at a PEG ratio of just 0.64 and Wall Street analysts have a median price target of $90.00 on the name. If GMCR is going to get back to its high-flying ways, however, it needs to deliver a blowout earnings report tomorrow which will get investors excited about the company's future again. On a final note, traders and investors should be aware that GMCR has a very high short interest (22.16%) and this could drive an explosive rally tomorrow if the company can significantly exceed expectations. In any case, the likelihood of a big move, either up or down, is extremely high given the variance in sentiment surrounding the name.