Green Mountain Getting Steep

The management of Green Mountain Coffee Roasters, Inc. (GMCR - Analyst Report) is implementing a growth strategy based on a multi-channel geographic penetration business model. The company is expanding geographically and by adding new relationships, such as McDonald's Corp.'s (MCD - Analyst Report) and Lowe's Companies, Inc. (LOW - Analyst Report).

Having generated 23 consecutive quarters of double-digit sales growth and eleven consecutive quarters with growth in excess of 25%, the stock is fairly valued at a premium P/E. In fiscal 2008, the management expects top-line growth of 44% to 46%. The stock is rated a Hold due to high valuation, rising input costs and an unfavorable product mix shift.

Green Mountain is a growth company in the growth sector. It is in the process of growing from a regional to a national company. In August, the company acquired a new manufacturing facility at Knox County, Tennessee for $10.4 million. The 334,000 square foot facility is expected to support the brand's national expansion and continued growth in the single-cup business.

Green Mountain Coffee Roasters is currently selling at 47.4 times trailing 12 month EPS, reflecting the company's higher-than-average growth profile, given the company's exposure to the attractive premium coffee industry and successful business model. Over the last few years, the stock has traded in a very wide P/E range of 14 to 98, with the stock only having traded above a 40 P/E since November 2006.

Net sales have grown at a 33.7% five-year compound annual growth rate (CAGR). Better-than-expected quarterly results along with the management's positive outlook for fiscal 2008 bode well for the company. The target price is $38.50, which is a 50 P/E multiple on 12-month trailing earnings.

Read the full analyst report on GMCR

Read the full analyst report on MCD

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