Stock (Symbol) |
Starbucks (SBUX) |
Stock Price |
$62 |
Sector |
| Retail & Travel |
Data is as of |
| November 19, 2015 |
Expected to Report |
| Jan 21 |
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 |
 Starbucks (SBUX) is a hot stock in 2015, having gone from around $40 to around $60 in a year. It’s loyalty rewards program gives customers a free item if they buy 12 cups of coffee, and management is on the cutting edge of new technological innovations. The company continues to expanded in the US and is expected to double its store count in the China Asia-Pacific region in five years (source: Barrons). But most of the stock’s appreciation can be attributed to the P/E rising from 25 to 33 even though profit growth has remained the same as it had been, and that’s what concerns me. It’s a great buy-and-hold investment for conservative accounts, but investors looking for a coffee a little bit stronger might wish to wait for the stock to come down some before getting in. |
One Year Chart |
 This stock’s been on a tear during the last year. A year ago the stock was $40 and its P/E was 25. Now its 33. It’s important to know the company was expected to make $1.57 and made $1.58 for 2015 (fiscal ended Sept 30th). So estimates aren’t pushing higher like premier stocks do. Maybe profits are growing 20% and you have to pay 33x profits for the stock. I don’t think the P/E can expand much. |
Fair Value |
 My Fair Value on this stock is always too low, the last four years the stocks had an average median P/E of 30. Here I estimated SBUX’s Fair Value at 25 times earnings, as that’s the price I would like to buy it at. Perhaps next qtr I’ll ratchet that up to maybe 28x, which would be a Fair Value of $53. With the stock around $62 it seems overvalued. |
Bottom Line |
 Starbucks is a premium blend. It’s been delivering high-teens profit growth, a yield of around 1.5% and the stock gets a top safety rating of 1 from Value Line. This is a great buy-and-hold stock for investors in the Conservative Growth Portfolio, but investors searching for higher returns within the Growth Portfolio might wish to wait for a pullback as this coffee is rich. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 19 of 32 |
