Keurig Green Mountain (GMCR) shares jumped over 20.0% after yesterday’s close on a solid earnings beat. Despite quarterly sales dropping by 13%, the maker of K-cup single-serve coffee pods delivered earnings of $0.85 a share, much higher than the forecasted $0.70. The company also raised its annualized dividend 13% to $1.30 a share. Sales in the fourth quarter came in at $1.04 billion, better than the $1.03 billion estimate. 1.9 million Keurig hot system brewer machines were sold, not counting returns.
Tuesday, the company’s stock dropped to a near 3-year low after Stifel Financial Corp reduced its guidance for Keurig sales in 2016 and 2017. Yesterday, Keurig advised that growth would be flat for 2016, much better than Stifel analyst Mark Astrachan’s decline of 7.8%.
Price action on the GMCR 240-minute chart shows that prior to the earnings release, a bullish butterfly formed. Point D was targeted with the 127.2% Fibonacci expansion level of the X to A leg and the 200.0% Fibonacci expansion level of the B to C move. If the bullish rebound continues, upside may target the 50-day SMA, which currently trades around the $53.24 level. Further upside could eventually target the psychological $60 handle. If we see the longer-term downward trend return, key support will come from the $39.76 low. Deeper support may target the $35.43.
The Trade: Buy GMCR at $47.00, with a stop loss at $45.00 and a take profit at $53.00. The Risk/Reward Ratio is 1:3