Green Mountain Coffee Roasters Inc. (GMCR): Have You Seen This Yet?

Where a Keurig machine may serve up only a few cups a day in a household, CEO Brian Kelley remarked that small restaurants that sell 10-20 cups per day would be a perfect target market. Restaurants could offer a variety of coffees and teas using a Keurig coffeemaker, guarantee freshness as each drink is made to order, and create opportunities to leverage existing brands to sell to their customers. A small lunch and dinner diner, for instance, could sell Starbucks Corporation (NASDAQ:SBUX)’s product to customers, offering a familiar name at a premium price.

Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) looks like a good play at the current price. The company estimates free cash flow to come in the range of $300-$400 million for the year, leaving it to trade at a FCF multiple of 25-33 times fiscal 2013 guidance. Meanwhile, the company continues to grow organically, with revenue rising 14% year-over-year.

Bottom line

A new exclusive agreement with Starbucks Corporation (NASDAQ:SBUX) helps create a moat for Green Mountain that was lost when the company fell victim to a patent cliff on K-cups. Inking an agreement with one of the best brands in coffee makes for a particularly good move, one which helps Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) claim Starbucks’ customers while solidifying Keurig as the “platform” for single cup brewing.

The article Can Green Mountain and Starbucks Give New Life to the K-Cup? originally appeared on Fool.com and is written by Jordan Wathen.

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