Janney puts $62 to $87/shr as fair value for PEET coffee, Guessing its based on GMCR stock price.
Peet's Coffee (NASDAQ:PEET): Janney initiates with a Buy, sees $62-$87/sh fair value Janney Capital Markets is out with an interesting call initiating Peet's Coffee (NASDAQ:PEET) with a Buy rating...and get this...$62-$87 fair value valuation range (official target stands at $62/sh).
With the pending acquisition of Diedrich Coffee (DDRX-$25.99; NR), PEET now has access to the fast-growing single cup segment of the specialty coffee category and is participating in this trend with the market leader, Keurig. Prior to the acquisition, PEET had been increasing EPS at a 25%+ rate despite a slowdown in the core PEET retail stores, driven by a rapid increase (20%+) in Peet’s branded coffee sales in the grocery channel. The one hole in PEET’s portfolio was the lack of participation in the rapidly growing single cup coffee trend, and this is now solved through the Diedrich acquisition. Prior to the acquisition, Janney forecast PEET has a three-year sales and EPS CAGR of 9% and 20%, respectively. With Diedrich, they forecast a three-year sales and EPS CAGR of 19% and 47%, respectively. At $37/sh, PEET is trading at 35.0x their 2009 EPS estimate of $1.06. While 2010 EPS will see the dilutive impact from the acquisition primarily in the form of non-cash goodwill amortization (~$0.50/sh), they expect EPS to more than double from the estimated 2009 level of $1.06 to $2.49 (ex-goodwill amortization) in 2011. Janney's current DCF-derived fair value of PEET excluding Diedrich is $40/share. Applying a forward P/E range of 25.0x to 35.0x (31.7x historical average) to their 2011 cash EPS estimate (including Diedrich) of $2.49 yields a twelve-month fair value target range of $62/sh to$87/share.