Reuters: Global Markets: Clarity lifts Green Mountain shares, shorts take cover

Reuters: Global Markets Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

Clarity lifts Green Mountain shares, shorts take cover Aug 2nd 2012, 18:44 Thu Aug 2, 2012 2:44pm EDT (Reuters) - Green Mountain Coffee Roasters Inc (GMCR.O) shares jumped as much as 35 percent on Thursday after the company won back the confidence of some on Wall Street with a lower-than-expected earnings forecast that was seen as more realistic and reliable. Late on Wednesday, the maker of Keurig coffee brewers and corresponding K-cup coffee refills reported better-than-expected quarterly earnings but cut its forecast for the full year for the second time. It also gave an earnings range for 2013 that was way below analysts' estimates. "At first glance, this guidance is shocking, but we believe that the story (and the stock) needed a shock to the system," SunTrust Robinson Humphrey analyst Bill Chappell said in a research note. He added that this could also be management's way of "resetting the bar to quiet some of the rampant speculation" around the company. Green Mountain shares were up $5, or 28 percent, at $22.92 in Thursday afternoon trade after rising as high as $24.15. Analysts said the rally was also likely fueled by short-sellers covering their negative bets. "You're looking at a good amount of short-covering in the market right now," said Marc Riddick, an analyst at Williams Capital Group. Green Mountain shares had fallen more than 80 percent since September amid a parade of bad news, including earnings misses, the demotion of its chairman for ill-timed margin call-related stock sales, and the departure of a board member. The company has also faced a barrage of questions from short-sellers about the sustainability of its growth and the credibility of its management and accounting practices. Short-sellers bet on a stock's decline by borrowing and then selling shares in the hope that they will be able to buy them back at a lower price. If they think a stock's decline is finished, and they want to close their bets, they buy shares, which helps push the price up. MORE CREDIBLE FORECAST Green Mountain's latest outlook calls for 2013 earnings of $2.55 to $2.65 per share, well below analysts' average estimate of $2.97, according to Thomson Reuters I/B/E/S. The forecast is based on a new method of predicting sales. Green Mountain turned to the new method after it greatly overestimated demand for its products earlier in the year, which led to a crisis of confidence that cut its market value nearly in half. Coupled with more details about internal assumptions, the guidance on Wednesday was seen as more achievable. "We believe the outlook should be viewed by investors as more credible and realistic," said William Blair analyst Jon Andersen. In an interview late on Wednesday, Green Mountain Chief Executive Lawrence Blanford told Reuters that it was important for the company to show that its forecasting methods have improved. "Hopefully we were able to build confidence with the analysts that we have done our homework and that the outlook we provided ... that we can in fact deliver that," Blanford said. Green Mountain expects annual growth of 15 to 20 percent for sales and a mid-teens percentage rate for earnings. Given the shares' collapse over the last several months, many analysts saw the reduction in profit growth as already more than baked into current valuations. "Do you think the stock has corrected sufficiently to reflect a reduction in growth from 40 percent to 15 percent?" joked Roth Capital Partners analyst Anton Brenner. "If so, at 6.9 times fiscal 2013 estimated EPS and 3.9 times EBITDA (earnings before interest, taxes, depreciation and amortization), the shares are compelling." Brenner reduced his price target to $35 and reiterated his "buy" rating on the shares. (Reporting by Melvin Backman and Martinne Geller in New York; editing by Matthew Lewis and John Wallace) Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions