Green Mountain Could Really Percolate

A Pungent Whiff
In December, 2005, this column recommended Green Mountain Coffee Roasters (GMCR ) as a play on America's love affair with coffee. The stock is up 18% since then, to 48.80 But long-term growth investor Richard Driehaus of Driehaus Capital Management in Chicago, which manages $3 billion, says the prospects are hot. Driehaus calls Green Mountain the "best retail story out there. This is like the razor to Gillette (PG ) or the printer cartridge to Hewlett-Packard (HPQ )." Some investors got the jitters when the company reported an earnings hit for its fiscal fourth quarter ended Sept. 30: Net income dropped 37%, to $1.5 million, or 19 cents per share, mostly because of costs related to its June acquisition of Keurig, which sells single-cup brewing systems. They overlooked that sales zoomed 87% in the quarter, in part because Keurig added $21.6 million to revenues. Sales have been brisk at Macy's (FD ), Bed Bath & Beyond (BBBY ), Target (TGT ), and Costco (COST ), says Mitchell Pinheiro of Janney Montgomery Scott, who on Dec. 6 reiterated his "buy" rating and his 12-month price target of 60. He sees earnings per share jumping from $1.07 in fiscal 2006, to $1.51 in 2007. Driehaus adds that because the Waterbury (Vt.) company now roasts, distributes, and sells organic coffee products, its vertical business model will allow it to ink more deals the way it did last year with McDonald's (MCD ), which in part credits better sales at 650 of its New England and New York stores to better-tasting coffee. (Individual packets allow for coffee to be brewed on the spot, rather than turn bitter in hours-old pots.) Driehaus figures the stock could quadruple in a few years.

Gene Marcial is on vacation.

Gene Marcial's Inside Wall Street is posted at at 5 p.m. EST on the magazine's publication day, usually Thursdays.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Mara Der Hovanesian

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