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Starbucks (SBUX) Highly Caffeinated Earnings After The Bell

Daniel Laboe

Earnings season has hit the peak of its excitement from the Tesla earnings massacre to consumer banks crushing earnings. Today is packed full of the biggest tech names like Amazon AMZN, Alphabet GOOGL, and Intel INTC. Starbucks SBUX is also reporting after hours and should bring in some highly caffeinated excitement.

SBUX isn’t typically a big mover on earnings reports, but they have had a few quarterly outliers with substantial price impacts. Starbucks analysts are predicting an EPS of $0.72, which would represent a 16% year-over-year appreciation. Revenues are estimated to be $6.69 billion, which would represent 6% growth and the largest quarterly sales that the company has ever seen.

EPS results have either beaten or been in line with every EPS estimate since 2012. Look for this trend to continue going into June quarter earnings.

Company Overview

Starbucks coffee is a morning staple for millions of humans around the world as its cold brew is essential to start my morning off right. Starbucks has started a brand that has become synonymous with coffee. Consistently driving growth through accessibility and brand loyalty.

Starbucks has over 30,000 locations around the world, making it the 3rd largest chain in the world behind McDonald’s MCD and Subway. The company is expected to have over 31,000 by the end of this fiscal year (9/30/19), representing store expansion of 46.5% in 5 years. Here in Chicago, you can’t go two blocks without seeing the beloved Starbucks mermaid.   

Store growth has slowed in North America, but there is much room to grow in Europe and Asia, although the company has been facing fierce competition in China with the new coffee-tech unicorn Luckin LK. Luckin coffee was founded less than 2 years ago, and the firm went public on the NASDAQ exchange this year with a more than $5 billion market cap. Luckin is expected to have 4,500 stores in China by the end of the year, which would rival Starbucks exposure.

Recent Performance

SBUX has been on a tear since the beginning of the year, appreciating north of 41%. These returns outpace both the industry and the S&P 500 by a significant amount. The question is whether or not this prolific growth can continue.

Right now SBUX is being valued at a 29.8x forward P/E which is its highest valuation since the beginning of 2016, far above any comparable index. It is trading at its highest ever EV/EBITDA of 19.7x.

SBUX is not cheap right now. The firm is expected to grow low double-digit EPS for the next 2 years with an aggressive stock buyback program being a catalyst for both the recent stock growth and its current high valuations.

Take Away

Starbucks is a revolutionary company that has transformed the coffee industry (including putting a lot of mom & pop shops out of business). They have been able to grow their business domestically and internationally consistently.

Expect EPS to be in line or above estimates with revenues being a close match. Something to keep an eye on is their Asia business to see if new competitor Luckin has been able to take share in the market abroad. Management guidance and sentiment is also always crucial in these quarterly reports/calls.

 

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