Starbucks (SBUX) is the Stock to Study in this October’s Better Investing magazine and was a featured growth stock last month in an article by guru Cy Lynch.
SBUX has a fantastic record of strong and consistent growth. Sales have grown some 26% per year for the past 10 years and 24% for the past 5 while EPS has averaged 28% annually for the past 10 and 29% for the past 5. SBUX’s 5 year Sales growth is almost 30% greater than its industry average.
SBUX’s 5 year Pre-Tax Profit Margin is 11.4% (trend even) and exceeds its industry average which, according to MSN Money Central, is Specialty Eateries (only 8 companies). Its 5 year Return on Equity is 17.4% (trend up) and also exceeds its industry average.
The company opened an average of 6 new stores each day in FY 2006 for a total of 14,396 stores by July 1, 2007 (up 22% from the year before) in 37 countries, 10,295 in the U.S. The Stock to Study article says that SBUX has a goal to have 40,000 locations worldwide and that the drivers of future growth include: further international expansion, with China seen as its largest market; new, hot breakfast sandwiches (now at 700 stores); and sales of music, books and movies.
Most analysts are now estimating around 22.00% EPS for the next 5 years (S&P and First Call exactly and Zacks at 21.56%) with Value Line Low at 19.00% and Reuters less one standard deviation at 21.77 – 1.66 or 20.11%. The lowest EPS estimate by the 20 Reuters and the 9 Zacks analysts was a whopping 20.00%. And, StockCentral’s TakeStock online is estimating 19.30%.
Here’s how the three SSGs compare:
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STARBUCKS
(SBUX)
|
Cy
Lynch
|
Armin
Fields
|
Take
Stock
|
|
|
|
|
|
|
Sales Growth
|
15.00
|
19.00
|
20.00
|
|
EPS Growth
|
16.90
|
18.00
|
19.30
|
|
Hi PE
|
35.0
|
33.0
|
30.0
|
|
Hi Price
|
$60.20
|
$62.70
|
$53.21
|
|
VL Hi Price &
VL Date
|
$60-80
6-8-07
|
$45-60
9-7-07
|
$45-60
9-7-07
|
|
Low PE
|
25.0
|
19.5
|
17.3
|
|
Low Price and method
|
$23.00 growth comp option
|
$16.20 growth comp option
|
$13.32 growth comp option
|
|
Up/Down Ratio
|
11.6
|
3.3
|
1.9 (imputed)
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|
Total Return
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18.3%
|
18.3%
|
14.4%
|
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Date
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7-12-07
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9-10-07
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9-10-07
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Price
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$25.96
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$27.04
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$27.16
|
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Buy Under
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n/a
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$27.83
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$23.29
|
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Sustain Growth
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n/a
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18.8%
|
n/a
|
|
Last Q data
|
2Q 2007
|
3Q 2007
|
3Q 2007
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|
Data Source
|
S&P
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S&P
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Hemscott
|
Value Line’s 6-8-07 report noted that SBUX was selling near its 52-week low. That report concluded: "We advise patient investors with a long-term view to take advantage of the current entry point, however. Starbucks remains a well-managed one-of-a-kind restaurant operator, and its new food and music offerings, promising cost containment initiatives, and vast international opportunity suggest that the firm’s best days are yet to come."
SBUX is still close to its 52 week low with a current price of $27.83 on 9-10-07 and a 52-week high and low of $40.01 and $25.22.
Oh yes, Starbucks just opened its first store in Russia last week.
I got a SSG Buy, while TakeStock did not, primarily because TS is much more rigid about projecting High and Low PEs. For every stock, no matter what, TakeStock always eliminates the highest five PEs in the last 10 years (or the majority if less than 10) to project its future values, and never exceeds 30 for any projected High PE, and then proportionally reduces its projected Low PE.
Armin Fields
- reposted on 9-12 in order to get quote from Value Line to publish |