I’m not much of a coffee drinker.
In fact, I never really touched the stuff until about five years ago … and for no good reason.
I’m certainly not one who has to have a morning cup like my wife or, like my grandfather used to, one after dinner.
My coffee experience is relatively infrequent … just when I feel like it.
My wife and I recently purchased a single-serving coffee maker that uses disposable pods.
Only this machine specializes in iced coffee — which I found is really the only way I can drink it.
Our coffee intake has only increased because my wife starts the day at 6 a.m., and that morning cup has become a requirement.
I, on the other hand, reach for the extra jolt of iced caffeine when I feel like it.
But there’s a coffee trend going on that could make our new morning habit a bit more expensive.
After I spotted this trend, I took a look at a popular coffee-related stock through the lens of Adam’s Green Zone Power Ratings system…
Previous Disruptions in the Coffee Market
Arabica is a high-end variety of coffee bean used for specialty brews.
It’s become increasingly popular in the U.S. Most beans you see on store shelves these days are derived from arabica beans.
The problem is that key producers in Brazil and Vietnam — where arabica is mostly harvested — have witnessed supply disruptions that adversely impact the price of coffee beans.
Arabica coffee futures jumped as much as 3% on Monday and are at their highest level since the 2010s.
A severe drought has hammered Brazil — the largest producer of Arabica — which has hurt coffee trees. Producers fear the weather conditions could negatively impact next season’s output.
Brazil indeed had a good batch of rain in October, but the problem was that the coffee flowers may not take to the branches, thus reducing overall yield.
On top of that, arabica exports have been high this year, meaning stockpiles of the bean could dwindle if the current crop is weaker than expected.
The U.S. Department of Agriculture’s Foreign Agricultural Service projects a 26% year-over-year decrease in Brazil’s coffee inventory when the season ends in June 2025.
Does that set up well for certain coffee stocks?
Let’s see what Green Zone Power Ratings says…
KDP: Strong Growth With Weak Momentum
Keurig Dr. Pepper Inc. (Nasdaq: KDP) makes coffee pod machines like the one my wife and I just purchased.
One “pod” creates one cup of coffee… super easy.
KDP rates a “Neutral” 47 out of 100 on Adam’s Green Zone Power Ratings system, meaning we expect it to perform in line with the broader market over the next 12 months.
Despite a “Neutral” rating, it’s still higher rated than other coffee companies such as Dutch Bros. Inc. (NYSE: BROS), which rates a “High-Risk” 6 and Starbucks Corp. (Nasdaq: SBUX), which rates a “High-Risk” 18 out of 100.
Where Keurig Dr. Pepper does shine is on Growth (82).
KDP Revenue Increases Steadily
Keurig Dr. Pepper’s revenue was $11.6 billion in 2020. By the end of 2024, that revenue is expected to be $15.3 billion — a 32% increase.
Its earnings per share was $1.14 in 2020 and is estimated to reach $1.91 by the end of the year — a 67.5% jump.
The problem is that growth hasn’t translated into the “maximum momentum” we look for in stocks.
KDP Flat Over Last 12 Months
In fact, KDP is trading essentially flat compared to just 12 months ago.
Hence, one of the reasons why the stock rates “Neutral” on Adam’s system.
What It Means: Coffee prices have been steadily rising in 2024, which is putting a crimp on our everyday Starbucks orders or even on coffeemaking at home.
Adam’s Green Zone Power Ratings system shows these coffee-related stocks struggling to make any headway.
As prices continue to rise, this will create additional headwinds for these stocks, despite millions of Americans still needing their morning cup of joe to start the day.
That’s all for me today.
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets
