Susquehanna Still Bullish On Keurig Green Mountain After Seeing 'Robust' K-Cup Data

In a report published Thursday, Susquehanna analyst Pablo Zuanic maintained a Positive rating and price target of $117 on

, following data that suggests strong performance by the K-Cup category. K-Cup has been witnessing dollar sales growth in the mid-teens, with the high-end segment seeing higher growth than the broader category, and accounts for 40 percent of the domestic coffee sales. "The growing relevance of the category to the larger ground coffee companies should lead to a strategic shake-out (i.e., bids coming for GMCR?)," Zuanic noted. During 2010-2014, K-Cup saw fluctuations, with coffee prices mimicking the movement of retail ground coffee prices to a large extent. This pattern has, however, been broken in 2015. However, year to date, K-Cup prices, across the category, have been flat, with K-Cup PL prices declining 14 percent. The analyst believes that this pattern could be temporary and a "natural bifurcation process," as the K-Cup market evolves. While this is expected to have a favorable impact on Keurig Green Mountain, the analyst believes that the greatest challenge for the company would be to migrate the K-Cup market away from its own range of brands. "While we think the growth in the high end segment of third party partner brands is not detrimental to dollar earnings per K-cups for GMCR, the low end growth hurts margins," the Susquehanna report explained. Given the growth momentum in the K-Cup market and if Keurig Green Mountain is able to at least sustain its margins, there could be upside potential to the stock.