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Peet's Acquisition Heats Up the Coffee Battle

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Peet's Acquisition Heats Up the Coffee Battle

Monday's acquisition announcement of Peet's Coffee & Tea (NASDAQ: PEET) for $73.50 per share by privately-held German firm Joh. A. Benckiser presents yet another development in what Piper Jaffray calls the "Year of the Restaurant."

Piper Jaffray's report, published following the Peet's news release, establishes a key takeaway that the added scarcity of investable companies in the industry can only be good for the sector. The note additionally highlights Starbucks (NASDAQ: SBUX) as the "best" company to benefit from the news in regards to its valuation.

No stranger to recent acquisition activity, Starbucks picked up Bay Bread and its La Boulange bakery chains in June - as well as juice company Evolution Fresh in November 2011. Interestingly enough, Starbucks and Peet's have frequented headlines together previously with rumors of the two companies in merger talks of their own last spring.

Earlier in 2012, Starbucks' rapidly-growing Consumer Products business segment dealt a direct blow to Green Mountain Coffee Roasters (NASDAQ: GMCR) with plans of its own single-cup coffee brewing model. Green Mountain's story has not been entirely pleasant in 2012. Shares are down around 60 percent as of Wednesday's market close, and the company may continue to take a beating with upcoming K-Cup patent expirations in September.

Starbucks' strategic acquisition of La Boulange additionally challenges Panera Bread (NASDAQ: PNRA) as well as rival Dunkin' Brands (NASDAQ: DNKN) - especially with recent news of global expansion initiatives from both companies. Dunkin' Brands CEO Nigel Travis commented on the purchase at Goldman Sachs' Lodging, Gaming, Restaurant and Leisure conference last month, calling it a "great compliment" and reiterating Dunkin's strong bakery position in the market. The company additionally holds a position in the single-serve coffee battle, as it launched its own K-Cups last year.

Heading into Starbucks' earnings release after market close Thursday, analysts are bullish across the board, with 20 rating the company at a Buy or Strong Buy.

Shares of Dunkin' Brands closed Wednesday up more than 27 percent year to date, and offer a comparable dividend of 15 cents to Starbucks' 17 cents.

Although Peet's will be taken private on the deal's closure, the business will in no way lose a competitive edge - and with the company's previously-stated interest, may enter the single-serve coffee market as well.

The acquisition is Benckiser's second coffee-related purchase in less than a month, according to Bloomberg Businessweek, with a 12.2 percent stake in single-serve coffee provider Senseo and Pickwick Tea company D.E. Master Blenders 1753 NV.

As companies continue to dish it out in the "Year of the Restaurant," investors may do well to follow the valuation trail. With Peet's post-deal forward price to earnings (P/E) ratio of more than 32 and Starbucks' forward P/E of 22.1, competitors Caribou Coffee's (NASDAQ: CBOU) forward P/E of 19 and Coffee Holding's (NASDAQ: JVA) forward P/E of 6.8 could be tasty alternatives.

 

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