A Prosperous Year Awaits Starbucks Corporation (SBUX)

Page 1 of 2

American coffee company Starbucks Corporation (NASDAQ:SBUX) just announced its 1Q13 earnings; the company met its earnings estimates as it reported a 13% rise in its profits. As a result, Starbucks’ stock closed at an eight month high of $56.81 on Friday.

Starbucks Corporation (NASDAQ:SBUX) Earnings

Starbucks Corporation (SBUX)The figure that was of foremost importance to the company was a 6% rise in sales at cafes open at least a year. According to the company, its strong results clearly show that the company outperformed its competitors even in a tough market. Starbucks reported earnings of $432.2 million ($0.57 per share), up from earnings of $382.1 million last year. Analysts were expecting earnings of $0.57 and revenue of $3.8 billion. The company’s revenue grew 11% from the last year whereas its operating margin increased to 16.6%. Moreover, in the U.S. and Americas, the company saw sales growth of 7%.

Holiday Season

Though most of the players in the restaurant industry didn’t have a great holiday season, Starbucks did very well thanks to its “Starbucks card.” It was one of the most widely gifted items in the season, with one in 10 U.S. adults receiving it. Plus, its first ever steel Starbucks cards worth $2 million were sold over the Internet in just six minutes.

Verismo

In September, 2012, the company launched its new coffee making machine “Versimo” at Starbucks online. As more than 150,000 machines have been sold so far, the company expects a lot from Verismo in the years ahead. According to the company, if Verismo keeps on doing well, it could be a multi-billion dollar deal for the company in the future.

Global Expansion Plans

In the Asian Pacific/Chinese region, Starbucks is currently operating in 12 countries. The company has plans of growing to 4,000 stores in the region, with the main focus on Japan (1,000 stores) and Korea (500 stores).

Starbucks’ major focus is on China where the company has 700 stores and plans on having more than 1,500 stores by the end of 2015. As far as India is concerned, Starbucks received an awesome customer response from its first four stores in Mumbai. As a result, the company will also be opening its first store in New Delhi next month. In the EMEA region as well, the company’s Q1 transactions were far greater than 1Q13. The company now has 500 stores outside U.K and continental Europe amid strong growth in the Middle East, Russia and Turkey.

Valuation

Starbucks is currently trading at a forward P/E of 21.38x; using the industry’s P/E of 22.9x, we can value Starbucks. As Starbucks is expected to perform well above the industry, we would use a premium of 10% while valuing its stock. Hence, an earnings multiple of 25.19x would be used.

Earnings Estimates Valuation – Industry P/E
Low $2.52 $63.50
Consensus $2.62 $66.00
High $2.82 $71.00

Using consensus estimates, we value Starbucks’ stock at $66. Hence, it has an upside potential of almost 18%. In addition to capital appreciation, a dividend yield of 1.50% yields a total return of 19.50%.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!