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Zacks Investment Research upgraded Green Mountain Coffee Roasters, Inc (GMCR - Analyst Report) to a Zacks Rank #1 (Strong Buy) on Aug 9 on the back of impressive third quarter fiscal 2013 results and an enhanced guidance for the year.

Why the Upgrade?

Green Mountain reported solid third quarter fiscal 2013 results on Aug 7. Earnings of 82 cents increased 58% from the year-ago earnings, bolstered by top-line growth and improved operational efficiencies. It also beat the Zacks Consensus Estimate by 5.1% and surpassed the company’s guidance of 71 cents–78 cents. In fact, Green Mountain has beaten the Zacks Consensus Estimate in all the past four quarters with an impressive average earnings surprise of 21.02%.

Total revenue surged 11.3% year over year to $967.1 million backed by an 18% sales growth of single-serve packs (K-cups and Vue Cups), while gross profit increased 34.4% to $407.6 million. Gross margin inflated 720 basis points (bps) to 42.1% due to favorable green coffee costs, lower wastage cost of finished goods and raw materials, lower warranty expense and labor and overhead manufacturing costs.

The strong momentum of its Keurig business led the company to raise its earnings outlook for fiscal 2013. Green Mountain expects its adjusted earnings per share in the range of $3.19 to $3.24, up from the prior guidance of $3.05 to $3.15, representing a solid growth rate of 37% to 39% from the year-ago results.

Other than the Keurig business, the company’s continuous efforts to increase brand investments and product innovations are also contributing to earnings growth. Moreover, Green Mountain aims to achieve double-digit growth in annual revenues and earnings growth in the mid-teens over the long term.

Estimates have mostly increased after the strong third quarter results and an upbeat outlook for the year. The Zacks Consensus Estimate increased 1.9% to $3.23 per share for fiscal 2013, while it grew 3.0% to $3.72 per share for fiscal 2014 over the past 7 days.

Other Stocks to Consider

Other retailers and wholesalers worth considering are Nash Finch Co. , United Natural Foods Inc. (UNFI - Analyst Report) and Ross Stores Inc (ROST - Analyst Report). While Nash Finch carries a Zacks Rank #1 (Strong Buy), United Natural and Ross Stores carry a Zacks Rank #2 (Buy).

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