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Starbucks Sees China as a Bigger Market than the U.S.

Stock (Symbol)

Starbucks (SBUX)

Stock Price

$56

Sector
Retail & Travel
Data is as of
June 10, 2016
Expected to Report
July 21
Company Description
starbucks_taiwanStarbucks Corporation is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 65 countries. The Company purchases and roasts high-quality coffees, along with handcrafted coffee, tea and other beverages and fresh food items, through company-operated stores. The Company sells goods and services under the brands including Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos. The Company has four operating segments: Americas, which is inclusive of the US, Canada, and Latin America; Europe, Middle East, and Africa (EMEA); China/Asia Pacific (CAP) and Channel Development. The Company sells Starbucks and Seattle’s Best Coffee roasted whole bean and ground coffees, Tazo teas, Starbucks VIA Ready Brew, and other coffee and tea related products to institutional foodservice companies that service business &industry, education, healthcare, office coffee distributors, hotels, restaurants, airlines and other retailers. Source: Thomson Financial
Sharek’s Take
David SharekStarbucks (SBUX) sees the China market someday outgrowing the U.S. The company currently has 7000 stores in the U.S. and 2000 in China. Management plans to open 500 more locations in China per year for the next five years and expects the country to be the coffee shops largest market. Starbucks is remarkable at churning out high-teens profit growth on a consistent basis, year-after-year. Last qtr the company had 18% profit growth on 9% sales growth which includes a solid 6% gain in same store sales. SBUX has an estimated long-term growth rate of 19% in addition to a 1% dividend for an estimated 20% total annual return. But with a P/E of 29, SBUX stock is slightly overvalued right now. Still, this stock as this is solid core holding for most investment accounts with its high safety rating. I currently hold SBUX stock in conservative accounts and am trying to add it to growth accounts, but am waiting patiently for a dip down to around $50 before doing so. Profit growth is expected to accelerate from the teens to the 20s later this year and that could be the spark this stock needs to break out of its long base.
One Year Chart
SBUX_2016_Q2I’m really stunned this company can churn out high-teens growth after all these years. Just a fantastic franchise. The stock is hitting support right here at $55 and I should probably be buying here but that P/E of 29 is holding me back. SBUX met profit estimates last qtr. Profit estimates stayed about the same as they were last qtr. Analysts expect profit growth to accelerate to 17%, 28%, 22% and 21% the next 4 qtrs.   
Fair Value
SBUX_2016_Q2_PHWe had a great opportunity to buy SBUX in 2010 when profits returned to new highs and the stock was selling for 21x earnings. Nowadays the P/E is around 30. My Fair Value on this stock is currently $53. Starting next qtr I will look ahead to fiscal 2017, and the Fair Value of $61. With the stock currently stuck in the middle of those two numbers I don’t see a lot of upside.
Bottom Line
SBUX_2016_Q2_10yrStarbucks is one of the worlds greatest franchises and I admire it immensely for its ability to continue to grow at such a rapid rate. This is a conservative stock with an estimated 20% total return which makes it valuable to many money managers. Accelerated profit growth is expected later this year and that could be the spark this stock needs to go higher. SBUX ranks 11th of 37 stocks in the Conservative Portfolio Power Rankings. I’m looking to buy it on a dip for the Growth Portfolio.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

11 of 37

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