Tags: Starbucks | SBUX | McDonald’s | MCD

Starbucks Poised for Steady Growth

By    |   Thursday, 11 Aug 2011 03:55 PM

It is difficult to find anyone, investor or not, who is not familiar with Starbucks (SBUX) and the company's ubiquitous coffee shops. For investors, Starbucks was a hot growth stock in the 1990s. By 2008, it seemed to have been overcome by its own size and by competitors, yet Starbucks has completed a surprising turnaround in the last three years.

The turnaround started in early 2008 when former CEO Howard Schultz retook the leadership of the company after stepping down in 2000. From 2007 to 2008, the company's net income had dropped by half. For full year 2008, Starbucks earned just 43 cents per share. In 2010, the company earned $1.24 per share, surpassing the previous high of 87 cents set in 2007.

Starbucks fiscal 2011 third quarter closed in July with the company reporting record earnings per share of 36 cents, up from 27 cents a year earlier. The earnings press release made special note of an 8 percent year-over-year gain in same store sales and 2 to 3 percentage point increase in operating margins for international and domestic operations. Revenues for the quarter were $2.93 billion, up 12 percent. The full-year earnings consensus is $1.52 per share.

Targeting growth

Company management growth projections see same-store sales increases of up to 7 percent for the balance of 2011. In 2012 the company forecasts 10 percent revenue growth and 15 to 20 percent net income growth. Of the 800 planned new store openings for 2012, three-quarters will be outside of the United States. International sales are currently about 20 percent of total company revenue.

The biggest drag to net earnings for Starbucks is rising coffee prices. Higher prices already are expected to impact the 2012 bottom line by almost 20 cents per share. Also, SBUX is currently trading at a P/E multiple 25 percent higher than primary competitor McDonald's (MCD).

Recently, the analysts at Robert W. Baird upgraded their rating on SBUX several steps, to outperform from neutral. The analysts put a target price of $45 on the stock. The company reports next on Nov. 4.

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It is difficult to find anyone, investor or not, who is not familiar with Starbucks (SBUX) and the company's ubiquitous coffee shops. For investors, Starbucks was a hot growth stock in the 1990s. By 2008, it seemed to have been overcome by its own size and by competitors,...
Starbucks,SBUX,McDonald’s,MCD
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Thursday, 11 Aug 2011 03:55 PM
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