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Some incredible things are happening with shares of Green Mountain Coffee Roasters (NASDAQ: GMCR).
The stock is up an amazing 30% on Thursday after the company reported earnings after the market closed, but that’s not what moved the stock.
In parallel with the earnings report came news that Coca-Cola (NYSE: KO) was turning to Green Mountain to develop individual servings of Coke that could be made at home.
The single-cup coffee maker scored big time. In the 10-year deal, Coca-Cola is making a big investment in Green Mountain. In return, Green Mountain hits front and center at the current home soda pop delivery system, SodaStream (NASDAQ: SODA).
It’s a brilliant deal. Green Mountain was being attacked by short sellers concerned about the maturation of the home coffee system makers market. If growth is stalling, that could derail the premium valuation in shares, or so went the short thesis.
This Coca-Cola deal blows that out of the water. It also created the epic short squeeze just like a Mento being dropped in a bottle of Diet Coke.
The transaction was one that put the earnings report in the back seat. Who cares about the numbers in the short term when you are about to do business with one of the most well-known brands in the world?
Wall Street firm KeyBanc raised their price target on Green Mountain from $100 per share to $150.
Unlike social media and Internet nonsensical valuations, this deal is a bit easier to price. The global beverage market is huge and in the home-delivery space there are few players. Coke sales are likely to be through the roof and now Green Mountain will capture a share of that market.
KeyBanc thinks the deal could add nearly $3.50 per share earnings power over the next three to tive years from this deal alone. That’s almost double what the company is making today.
I suspect the impact will be even greater.
The impact on Coca-Cola is less clear. Home sales could grow the overall market or it might cannibalize existing markets. Its shares are up slightly on the Green Mountain deal news.
The trickle-down here is enormous.
What does PepsiCo (NYSE: PEP) do in response?
The obvious target is SodaStream. Its shares are up 10% on speculation that PepsiCo will have no choice but to partner with the company in response to Coca-Cola partnering with Green Mountain.
I think the fireworks are just starting. Despite the big jump in Green Mountain shares on Thursday, they are likely to be the big winner when the dust settles.
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