As The World Turns: Green Mountain is a Soap Opera

When David Einhorn announced that he was short Green Mountain Coffee Roasters at the Value Investing Congress last week, investors shot first and asked questions later, sending shares down some 25%, before finally starting to recover today.

Einhorn, of Greenlight Capital, said at the conference that the company is much likelier to earn $3.50 per share in the coming years, not the $9 that the bulls believe. Investors tend to listen to Einhorn, after certain calls in the past have worked out. Names like Lehman Brothers and St. Joe Company come to mind. Einhorn announced that he was short St. Joe at last year’s Value Investing Congress, saying he thinks the company is worth around $10 per share. In the past one year from today, shares of St. Joe have lost 28%.

Then last week, one of the largest Green Mountain bulls, SunTrust analyst William Chappell, came out in defence of the name, saying Einhorn’s maths was shoddy. He came out and reiterated his Buy rating and $120 price target on the name.

Monday we saw what Einhorn was talking about, when he mentioned other competitors entering the lucrative K-Cup market. CNBC’s Herb Greenberg tweeted a link to private company Rogers Company’s press release, as the company is now entering the market – at 25-30% less than competitors.

In the press release, Rogers says, “The OneCup – the Rogers Family Company’s initial product entry into the growing single serve market – provides consumers the highest quality gourmet coffee roasted in the rich, dark European tradition and a 12-cup box is now available online for $7.99.”

It goes on to say, “The San Francisco Bay OneCup can be used in most single serve brewers. The initial OneCup products – that use only 100% Arabica beans from the world’s premier growing regions – will be Organic Rainforest Blend, French Roast, Fog Chaser and Decaf French Roast.”

The entire press release can be found here. Rogers essentially attacks Green Mountain, the leader in the single serve coffee market, and is trying to appeal to the value it believes it has over Green Mountain.

If this was not enough drama for Green Mountain investors, “accounting guru” Robert Willens is holding a conference call with Keybanc today at 2 p.m. Keybanc is very bullish on Green Mountain shares. It has a $120 price target and a Buy rating on shares.

Einhorn almost blatantly called Green Mountain an accounting fraud, saying the company has been booking sales that were not actually sales, in his report. The company was already accused of this in 2009, and the SEC found nothing wrong. Yet, Einhorn called the company out on it, and the bulls have come to the defence.

While every high momentum stock has its bulls and bears, this battle has become exceedingly public because of Einhorn’s nature. When he has been bearish on a stock, he tends to be right.

Wall Street is no stranger to drama. From Bernie Madoff, to Enron, to Raj Rajaratnam, to Dennis Koslowski, there has been more drama on Wall Street in recent years than the daytime lineup on ABC. Maybe CBS should not have canceled, “As The World Turns.” It should have just changed the program to be about Wall Street instead of the good looking, rich, and infamous.

Isn’t that the same thing though?

–Jonathan Chen

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