1. Husky Traders Stock Pitch: GMCR Nabil Manji February 26, 2014

2. Industry Overview COFFEE!  NA/Europe: Coffee = 1/3 of water consumption  2.25b cups consumed per day worldwide Size:  ~$120b global market  ~$15b sold by coffee brewers/retailers  Second most traded commodity behind oil Sectors:  Brewers/retailers: SBUX, local coffee shop  At Home: Nestle, Folgers (>60% mkt share)  New “Convenient At Home”: Keurig, Verisimo, Nespresso, etc.

3. GMCR Company Overview  Founded 1981 as producer, distributor, and retailer of organic, fair trade, and specialty coffees  Buys from farmers  refines & roasts  sells to brewers, retail chains, and directly to consumers Revolutionized home brewing…  No messy filters  Variety of choices  pleases all  Convenient & fast  No waste  Easy to clean up (no dishes) In 2006, acquired Keurig

4. Growth Catalysts  Starbucks raising prices  $3-5 per drink unsustainable  Keurig Pods ~$0.25 per drink  Growing health conscience  reversion to drip/black coffee away from fat, sugary milk-based espresso drinks  Desired convenience without hindrances  Easy expansion  no regulatory hurdles Sincerest form of flattery is when your competitors copy you… Starbucks VerismoNespresso Cuisinart

5. Basic Financials Metric (FY 2013)# Revenue$4.36 b Gross Profit$1.62b (37.16%) Net Income$483m (10.05%) EPS$3.16 (38.60% growth YoY) Dividend$1.00/yr (0.85% yield)

6. Technicals v. “Competitors” CompanyGMCRSBUXDNKNSector P/E34.86545.93 37.93 33.70 Price/Sales3.973.48 7.67 5.07 Beta0.871.26 0.45 0.57 Op. Margin % (5yr avg.) 18.37%15.01% 32.94% 18.92% Dividend Yield0.851.47 1.79 2.29 Forecast Sales Growth 11.30%10.90% 7.60% - Price to Cash Flow 23.5167.00 28.00 25.15 Quick Ratio1.840.95 0.90 0.84

7. Outlook Strategic:  Home brewing growing ~5% annually since 2004  Cost- and health-conscious consumers move away from Starbucks- esque drinks  Keurig has long-term contracts with many producers (Lavazza, Dunkin, Tully’s, GMC, etc.)  New partnerships with manufacturers (Cuisinart, etc.)  increase margins over long-term by focusing on K-pods  Entry into commercial market  prime for disruption  Marketing  customer entrenchment Operational:  Moving towards asset light structure (outsourcing production to other manufacturers)  Rapidly increasing size  more power over suppliers

8. Risks  Patents expired last year  easy for competitors to copy  Dependence on suppliers to maintain variety  Quality concerns over Keurig machines haven’t been satisfactorily addressed/corrected  Big price jump after beating 2013 earnings forecasts; maybe we’re too late & future is already priced in?

9. Takeaways Price/Stock:  Based on sales/margin growth expectations, a bargain compared to competitors & industry/sector  Newly implemented dividend of $1.00/share  Analyst mean/median target: $125.00 (current price = $116) My Thesis (risky):  Keurig entering more retailers, homes, businesses  Once people own machine  high margin K-cups  Earnings play (announcing May 5)  Most Keurigs sold holiday season  many K-cups will be sold this quarter for new owners