With equity markets at and near all-time highs, it might be surprising to find a stock that is 26 percent below its recent high. But that’s where Green Mountain Coffee Roasters (GMCR) is. Yet, for the year, the stock is still up 55 percent. On Tuesday, the stock closed at $64.16, down from a high of $73.10 in the past two days following strong fourth-quarter earnings.
Specifically, the company reported that it earned $126.9 million or 84 cents basic earnings per share. That was an increase from $91.9 million, or 59 cents basic earnings per share from a year ago. GMCR also had strong top-line growth, with revenue rising to $1.05 billion from $947 million a year ago. Gains were primarily due to robust sales in the brewer unit and continued momentum in GMCR’s portion packs. It should also be noted that FY2013 was a week shorter than FY2012 – a tidbit that makes these even stronger results.
Gross margin, which was at 36 percent in Q3 2013 gained from 33.6 percent a year ago, while operating income gained to 16.93 percent from 15.18 percent.
Moving forward, GMCR should also be able to build on this growth. In Q1 2014, GMCR is forecasting earnings per share of 87-90 cents, up from 70 cents in Q1 2013.
TECHNICALS ALSO STRONG
These strong fundamentals are confirmed in a recent technical shift. GMCR recently broke above a downtrend line in tact from the stock’s decline from $90 to the low at $58. Additionally, the stock recently broke above the 50-day moving average ($63.93), and is trading slightly below the 200-day moving average ($74.27).
As noted earlier, Green Mountain traded in a range of $56.87 to $73.57 over the past 30 days. On a wider chart, the stock receives support at $59, while resistance starts to show near $86.
DEBIT CALL SPREAD RECOMMENDATION
Technical and fundamental indicators both show short-term bullish signals for GMCR. Investors should consider the following debit call spread: Buy January 2013 $65 calls and sell the January 2013 $67.50 calls for a net debit of $1.20. Before expiration, we believe that the price of the spread could reach $2.40 when GMCR trades above $67.50. As with any debit call spreads, the maximum risk is the premium paid – or $1.20 per share.
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