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Howard Schultz: Starbucks Stock 'Is Cheap and Undervalued'

Friday, 22 June 2018 05:45 PM

Starbucks Corp. Executive Chairman Howard Schultz tells CNBC the coffee café company's stock is "cheap" and "undervalued." 

Shares of the company (SBUX) closed higher Firday at $51.24 despite being down almost 15 percent from a year ago as Starbucks struggles to recover from weak same-store sales and poor foot traffic. About a year ago, the stock was trading at about $59.96.

"The stock (which in almost 40 years) I have rarely commented on is cheap and undervalued," Schultz said in an email to CNBC's Jim Cramer.

"Given Starbucks scale and global footprint it's almost inevitable that we will face cyclical changes in the business," Schultz said in the email ahead of his departure as Starbucks executive chairman next week.

"Some self-induced (after all we're all human) and others due to market forces. Yet, if you look at our history (26 years) as a public company we have always been a learning organization that is built on a foundation of growth and innovation, leading to superior financial performance. I can unequivocally promise you this time will be no different," wrote Schultz, who has overseen its expansion from a single coffee shop that opened in Seattle's Pike Place Market in 1971.

"And, for those who have looked at Starbucks whenever there has been a glitch in US comp store sales, and determined the glass is half empty they are respectfully dead wrong," he said.

Meanwhile, Starbucks recently reported a sudden slowdown in China growth just weeks after trumpeting rapid expansion in the country, citing a drop-off in unapproved third-party delivery services whose bulk orders had been clogging up its cafes, Reuters explained.

The Seattle-based cafe chain said on Tuesday same-store sales would be flat to slightly negative in its second-biggest market in April-June, versus 7 percent growth a year earlier. The announcement was followed by a 9 percent drop in Starbucks' share price.

China has been a sweet spot for Starbucks for the past few years, as the country embraces cafes and opens up to drinking coffee over tea while growth saturates back home. Last month, the firm said it aimed to triple China revenue and double cafe numbers to 6,000 by 2022.

But on Tuesday, the company said new cafe openings were cannibalising customer visits at other stores, as also happened in the United States. However, Starbucks particularly noted a decline in third-party firms - with whom it had no formal arrangements - that placed large orders for delivery to their own customers, often resulting in long in-store queues.

"I think it was driven by the government to want to stop having third parties do that because it was creating annoyances," Chief Executive Kevin Johnson said on a call with analysts on Tuesday. He said the remedy was to seal a delivery partnership with a "large tech company" by the end of the year.

Reuters was unable to confirm any government measures on the matter.

Starbucks also on Tuesday said it planned to close 150 cafes in the United States and open fewer locations in its financial year beginning in October, in response to competition that has seen new coffee chains, convenience stores and fast-food restaurants improve quality and cut prices.

Several analysts downgraded their view of Starbucks stock and lowered their 12-month price targets after the firm on Tuesday forecast global same-store sales growth of 1 percent for its third financial quarter, below analysts' 3 percent estimate.

The stock has declined 9 percent so far this year compared with a 3.5 percent rise in the S&P 500 index. Still, of 31 analysts covering the stock in the United States, 20 rated it "buy" or "strong buy," while the 12-month median price target was a 24 percent premium to its Wednesday close.

(Newsmax wire services contributed to this report).

© 2020 Thomson/Reuters. All rights reserved.

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Starbucks Corp. Executive Chairman Howard Schultz tells CNBC the coffee café company's stock is "cheap" and "undervalued."
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Friday, 22 June 2018 05:45 PM
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