Stock (Symbol) |
Starbucks (SBUX) |
Stock Price |
$55 |
Sector |
| Retail & Travel |
Data is as of |
| August 22, 2016 |
Expected to Report |
| Nov 3 |
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 |
 As investors, we take Starbucks (SBUX) for granted. When the little Seattle-based coffee shop first went public in 1992 it opened at $0.38 a share (after accounting for stock splits), was $18 by the end of 2006, then fell to $4 during the 2008-early 2009 recession, followed by another tear higher to $64 of in October 2015 when it became overvalued (here’s my SBUX 2015 Q3 with the P/E 31). For almost a year the stock’s been trending down yet holding tight, and is $53 today. Starbuck’s profits have grown steady almost every year. From 1996-2005 profits grew 28% a year and now a more mature SBUX is considered to be a 19% grower (plus a 1% yield) for a 20% est. total annual return. With its superb business model, I feel this “20% grower” should have P/E of 28. The median P/E the past decade is 29 and there were stages where the stock became overvalued (P/E of 48 in 2006, 32 in 2007, and 33 in 2015) and undervalued (median P/E was 20 in 2008 & 2009). With a current P/E of 24 feel this is a rare opportunity to buy SBUX on a dip, and I doubt it will get much cheaper. Already owned in the Conservative Growth Portfolio, I will also add SBUX to the Growth Portfolio and Aggressive Growth Portfolio. |
One Year Chart |
 These charts were done 8/22 when SBUX was $55. Profit growth has been in the teens the past 4 qtrs, and Estimates are for growth to be to 28%, 20%, 21% and 12% the next 4 qtrs. That would mean accelerated growth, and a 20% grower selling for 24 times earnings — a good deal. Last qtr the company delivered 17% profit growth on just 7% sales growth, with a solid 4% same store sales increase. Sales were a little light due to moderate weather (yeah really) which was also what the dollar stores experienced last qtr. Thus, we could be entering a weaker retail environment, or the company could have a bounce back qtr. I’m not betting against SBUX. |
Fair Value |
 Last qtr I mentioned we had a great opportunity to buy SBUX in 2010 when profits returned to new highs and the stock was selling for 21x earnings. Now the P/E has fallen from 33 last year to 24 today and I’m not gonna sit on my hands. My Fair Value is currently $61, which is 28 times 2017 earnings estimates. SBUX reports its fiscal year-end on September 30th thus I’m now looking ahead to next year. Upside through next year seems modest, but I’m looking to buy-and-hold and let the stock compound. |
Bottom Line |
 Starbucks is one in a handful of premier worldwide franchises that have consistently delivered growth of 15% for its investors. Although we take this stock for granted, profits continue to grow faster than 15% a year. Last qtr Starbucks opened 474 new stores, increasing its count to 24,395 across 74 countries. China represents enormous growth opportunity for the future. I see this dip as a rare buying opportunity and will purchase SBUX today for the Growth Portfolio and Aggressive Growth Portfolio where it will rank 16th in each portfolio’s Power Rankings. SBUX is already in the Conservative Portfolio and ranks 6th of 36 stocks in the Power Rankings. |
Power Rankings |
Growth Stock Portfolio
16 of 38Aggressive Growth Portfolio 16 of 17Conservative Stock Portfolio 6 of 36 |
