Four Companies at War for Your Holiday Dollar
Oct 11th 2013 2:51PM
Updated Oct 11th 2013 2:52PM
Plenty of companies are gearing up for the holiday kitchen wars, from coffeemaker and crock-pot makers to soda machine upstarts. Competing for your kitchen counter gifting are Green Mountain Coffee Roasters (NASDAQ: GMCR), SodaStream (NASDAQ: SODA), Jarden , and Lifetime Brands (NASDAQ: LCUT).
An innovation that could brew profits
Green Mountain Coffee Roasters, manufacturer of the Keurig and its K-cup pods, was a game changer for hot beverage delivery. A new partnership with Campbell Soup Company may change dorm rooms forever--soup will debut in a K-Cup in early 2014. Actual sustaining food heated to the perfect temperature will draw new customers to buy Keurig machines.
Given the choice between a coffeemaker that can make coffee, tea, and soup, and more pedestrian Keurig alternatives manufactured by Jarden, Starbucks, or Cuisinart (owned by Lifetime Brands), gifters will likely pony up for the Keurig.
All manner of heat'em up food manufacturers could line up to partner with Green Mountain, with "pod" possibly becoming a verb as more food applications are developed. A bullish Canaccord analyst note said soup K-Cups was a positive catalyst for this very reason.
Other analysts also went bullish after the company's Analyst Day announcement of cold drinks, waters, and possibly soda capabilities in 2015. The company filed an application in July for a soda maker machine to be called Karbon.
A high short interest of over 37% lingers, and famed investor David Einhorn is still short on the name despite its low debt to equity ratio of 0.12, net profit margin of 10.50%, and licensing agreements with over 20 top consumer beverage brands.
Still bubbling higher
Speaking of soda, Sodastream, the manufacturer of beverage carbonation machines, looks poised to prosper this holiday season. Revenues have grown 51%, and earnings per share are up 59% over the last year as ever more retailers carry the brand. It's a win-win for retailers as the refill cartridges, that enviable razor and blade model, bring recurring traffic to their stores.
Although a momentum name, it trades at a lower trailing earningsmultiple of 25.96 to Green Mountain's 26.45. Like Green Mountain, SodaStream has increased its number of brand licensing agreements significantly, including deals with giants like Kraft Foods Group. Their most recent coup is a partnership with Samsung for built-in SodaStream machines in refrigerators.
SodaStream's stock was recently hit by news that Starbucks was entering the soda machine market with an application to register "Fizzio" as the name for a soda maker machine, although there are no current plans to market it as an at-home machine.Cuisinart also sells a carbonated beverage maker with the exciting moniker Model SMS-201BK.
Besides increasing competition, another caveat is a huge short interest of almost 50%. But expect retail partners like Bed Bath & Beyond and Wal-Mart to prominently display SodaStream machines as a gift idea.
New higher margin products
This holiday season Jarden will compete for your hard-earned cash with its Sunbeam, Mr. Coffee, and other small kitchen appliances. Both Jarden and Lifetime Brands sell crock-pots, coffeemakers, and many other kitchen-oriented gifts.
Lifetime Brands has 30 brands in its portfolio, like Kitchen Aid, Cuisinart, and more, related to the kitchen and table. It trades at the lowest earnings multiple of these companies at 10.81 and offers a yield of 0.8%. Its most recent earnings results were lukewarm at best, although the company raised guidance for the back half of the year.
Jarden, the manufacturer of over 100 brands of consumer solutions and the largest sports equipment business in the world, is larger than Lifetime Brands ($189 million market cap) at a $5.25 billion market cap and trades at a trailing earnings multiple valuation of 27.20. This is higher than Green Mountain's 26.25, with both higher than the industry average of 21. Jarden has a high total debt to equity ratio of 2.44, much higher than Green Mountain's 0.12 and SodaStream's 0.05.
A net profit margin of 2.90% isn't compelling, despite a net sales compound annual growth rate of 31% since 2002. Jarden has $1 billion in cash and spends more than a third, one million dollars daily, on research and development. This pays off, as 30% of revenues come from new products. Executive Chairman Martin Franklin noted on the second quarter call that these new products introduced in the last three years have higher gross margins than the products they supplant.
A present for your portfolio
While Lifetime Brands has a low multiple and a low yield, its recent earnings haven't been promising. Jarden's overall numbers won't likely be moved much by holiday sales and don't forget its higher debt.
Green Mountain and SodaStream look like the best ideas for holiday season profits. Both have low debt, are innovating, and are acquiring more licensing agreements.
The battle to rule retail will heat up this holiday season
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The article Four Companies at War for Your Holiday Dollar originally appeared on Fool.com.AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters and SodaStream. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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