Stock (Symbol) |
Starbucks (SBUX) |
Stock Price |
$55 |
Sector |
| Retail & Travel |
Data is as of |
| September 5, 2017 |
Expected to Report |
| Nov 2 |
Company Description |
 Starbucks is the premier roaster, marketer and retailer of specialty coffee in the world, operating in 65 countries. It 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. SBUX 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. Source: Thomson Financial |
Sharek’s Take |
 Starbucks’ (SBUX) has a case of deteriorating fundamentals. Once a fast growing stock, SBUX had its profit/stock growth slow from around 28% a year a decade ago to the high-teens this decade and now growth is looking to be in the 11% to 13% range. What’s bad about that is the P/E ratio would normally suffer in a situation like this — and it has. SBUX’s P/E has fallen from the low-30s two years ago to the high-20s last year and now the low-20s. The lower valuation combined with moderate profit growth has resulted in the stock flatlining the past two years. Also, annual estimates have been deteriorating the past 4 qtrs:
2017 from $2.14 to $2.13, $2.10 and now $2.07 Still, this is a good investment. The company’s Mobile Order and Pay has boosted sales, and China will lead the next phase of growth. The high-end Roasteries and Starbucks Reserve stores gives the company growth opportunity. Starbucks can also boost sales per store by offering new (and honestly better) lunch items (food was 21% of sales last qtr). Starbucks now has 2000 location in China, and management plans to open 500 more locations in that country per year for the next five years, with the country eventually becoming its largest market. Analysts have an Estimated Long-Term Growth Rate of 15% on SBUX now, but I feel this could get lowered in the coming qtrs to around 12%. The stock has a high degree of safety, and a yield of close to 2%. The company has its fiscal year end September 30th so I’m looking ahead to 2018 to calculate my P/E, which is 23 and that’s down from 29 last qtr. So yes growth is slowing at Starbucks, but the bad news is already baked into the stock. |
One Year Chart |
 Not a bad looking one-year chart. Notice SBUX rallied with the 15% profit growth then fell when profits grew just 12%. The company has met profit estimates the last 4 qtrs. Looking ahead, qtrly estimates just declined with profit growth now expected to be -2%, 13%, 11% and 11% the next 4 qtrs. Next qtr’s est took a tumble due to “choppiness” and closure charges for closing 379 Teavana mall stores. The P/E of 23 is fair for this stock. |
Fair Value |
 I think SBUX is worth 25x earnings and that gives us a Fair Value of $59 this year and $68 next year. Note that’s been my range for this stock for two years now. |
Bottom Line |
 Starbucks has a lot of certainty. Peoplse are going to keep going there — even in a recession. Last recession, profits went down. But I don’t see that happening next time, as people can skip coffee in the morning but breakfast and lunch. There’s a lot of stocks that go down and don’t come back, and I feel there’s a bright outlook for continued growth. I see 12% growth plus a 2% dividend. Think about all the times you tried for more and took a loss — Starbucks has certainty. SBUX ranks 32nd in the Growth Portfolio Power Rankings and jumps from 19th to 9th in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
32 of 33Aggressive Growth Portfolio N/AConservative Stock Portfolio 9 of 32 |
