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Is This a Good Time to Take Profits in Starbucks?

Stock (Symbol)

Starbucks (SBUX)

Stock Price

$56

Sector
Retail & Travel
Data is as of
February 13, 2017
Expected to Report
Apr 27
Company Description
Starbucks 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) doesn’t have a lot of mojo right now, and I feel this is a good time to take profits in the stock. I get the impression that growth is slowing just a tad for the coffeehouse chain. Last qtr’s profits rose just 13% on just 7% sales growth vs 16% growth a qtr earlier. Same store sales rose a respectable 3%, down from 4% the qtr before. Locations are having trouble keeping up with mobile pay and ordering, as the long line waiting of people waiting on drinks is causing other customers to pass on buying. This issue is confined to American stores. China will be Starbuck’s next growth opportunity. The company now has 25000 locations, with 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 become its largest market. SBUX stock gets a high safety rating (as it does dependable business every day) and has an Est. LTG of 16% a year in addition to a yield of close to 2%. The P/E is 26 which is reasonable. But the company only met profit estimates last qtr and 2017 profit estimates have declined a bit from $2.19 to $2.13 the last 4 qtrs, thus I don’t feel the stock is hot. SBUX sells for 26x earning. My 2017 Fair Value is $58 and with the stock just below that I think this would be a good time to take some profits if you have them. There’s some hot Internet and Chinese stocks making new highs and bursting higher, and thus the money might be better spent there. 
has One Year Chart
Last qtr, SBUX delivered 13% profit growth on 7% sales growth, and met earnings estimates. Profit estimates stayed mainly in line with where they were last qtr. Notice in the one-year chart how the stock is stuck in a trading range. With a P/E of 26 qtrly Estimates of 15%, 12%, 9% and 15% I don’t think the stock will have enough power to burst through $60 and break out.
Fair Value
I think this stock has been overvalued for the last five years or so. I think the P/E of 26 is reasonable. Unfortunately with Annual Profit Estimates not rising, I don’t see much movement in the stock until this summer. The company ends its fiscal year on September 30th and I’ll be looking ahead to 2018’s Fair Value this Summer.
Bottom Line
Starbucks is one of the world’s premier franchises as the stock has consistently delivered growth of more than 15% a year long-term for its investors. What’s more is this is one of the safest growing stocks around with a high degree of security, and investors even get a 2% dividend yield. Still, I think the stock is stuck here for a bit, and one could find other stocks that are moving. SBUX ranks 27th in the Growth Portfolio Power Rankings. I will sell the stock from the Aggressive Growth Portfolio. as I see a stock market pullback on the horizon and would like to have some cash. In the Conservative Portfolio Power Rankings. SBUX ranks 9th of 30 stocks.
Power Rankings
Growth Stock Portfolio

27 of 32

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

9 of 30

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