GMCR

Siddharth Das

Investment Thesis

GMCR is a market leader in a growing

consumer industry

Great potential for growth and

innovation

Over 30% short interest, allowing for a

potential short squeeze

Worries over competition driving down

margins are overestimated

Industry Overview

Coffee consumption is increasing (78%

to 83% in one year) along with single

cup coffee consumption (8% to 13% in

one year)

24% owned a brewer in 2012, 36% in

2013

Company Overview

Operates in the US and Canada

GMCR is the leader in single-cup coffee

with 13% market share of total coffee

consumption in the US

Sold 8.3 billion portion packs, compared

to 6.6 billion last year (26% increase)

Strengths in loyalty, diversity, and

brands

Business Model

Operates on a razor/razor blade model

Sells brewing machines (razor) at low

margin

Sells K-cups (razor blade) at high margins

22% growth in portion packs

Has wholesale customer accounts in

supermarkets, convenience

stores, hotels, restaurants, universities,

and offices

Great Brands (48)

Caribou Coffee

Dunkin’ Donuts

Eight O’Clock

Good Earth

Kirkland Signature

Lipton

Orient Express

Promenade

Seattle’s Best

Coffee

Snapple

Starbucks

Swiss Miss

Tazo

Tully’s

Vitamin Burst

Numbers

Price: $69.04

52 Week Range: 27.88 – 89.66

Market Cap: 10.98B

Daily Volume: 4.6M

Debt to Equity: 12.7%

EV/EBITDA: 9.42

Yield: 1.45%

Beta: 0.90

P/E

GMCR Industry

Average

S&P

500

20.84 21.27 19.69

1 Year 3 Year 5

Year

9 Year

Net Margin 9.40 7.61 6.85 5.89

% ROE 17.38 15.04 15.82 15.90

Chart

Acquired

Van Houtte

Announced

SBUX Deal

David

Einhorn

Shorts

Missed

estimates

Drop in K-

cup demand

Renews

SBUX deal

Recent Updates

Announced a $1 billion share buyback

program

Announced $1.00 annual dividend, paid

quarterly

16% revenue growth for year; 22% for

quarter

FCF grew from $77 million last year to

$603 million, projected $200-$300 for

next year

Looking Ahead

Upgrading to Keurig 2.0 within a year

Expanding into cold products (carbonated,

sparkling, and still) with new technology

Launching in UK, Australia, South Korea,

and Sweden in 2014

Looking to grow in work (10%), hospitality

(5%), and food (1%) locations

Expanding into soup and hot cereal

Locked in 100% of coffee beans for 2014

Management

CEO Brian Kelley

Consistently beats estimates

Management holds 11% of equity

Risks

Decreased sale of Keurig Brewing

Systems from competition

Shifting preferences for coffee

SEC looking into accounting practices

Increased competition after patent on K-

cups expired September 2013

Price of Arabica coffee beans

Conclusion

Coffee consumption and single cup

coffee is increasing

Undervalued due to overestimation of

competitors

Float short allows for a potential short

squeeze

Appendix

10-K

The Street (Nov. 17)

S&P Capital IQ (Nov. 21)

National Coffee Association