Starbucks Corporation (SBUX): An Insider-And Former Defense Secretary-Is Guzzling Shares

Starbucks can be compared to Dunkin Brands Group Inc (NASDAQ:DNKN) and McDonald’s Corporation (NYSE:MCD) – two other quick service restaurants which are known for providing coffee- and more upscale, high growth QSRs Panera Bread Co (NASDAQ:PNRA) and Chipotle Mexican Grill, Inc. (NYSE:CMG). McDonald’s Corporation (NYSE:MCD), at 19 times its trailing earnings, is by far the cheapest of this peer group on that basis. It’s also notable for its 3% dividend yield and relative independence from the market at a beta of 0.3, although business has been about flat recently. Business has also not been too good at Dunkin Brands Group Inc (NASDAQ:DNKN), with earnings down 8% in its last quarterly report compared to a year ago, and we’d certainly avoid that stock given its valuation. Panera Bread Co (NASDAQ:PNRA) and Chipotle Mexican Grill, Inc. (NYSE:CMG) look quite similar to each other in terms of recent performance, with matching 13% revenue growth rates in Q1 versus a year earlier and slightly higher growth of net income in each case. However, the P/E multiples are very high here as well; even looking at forward earnings estimates, Panera Bread Co (NASDAQ:PNRA)’s P/E is 22 and Chipotle Mexican Grill, Inc. (NYSE:CMG)’s is 29. While these restaurants are quite interesting to us as consumers, they don’t seem to be good values at this time.

We don’t recommend following Gates into this purchase. Quick service restaurants in general seem like they may be overvalued, given their high earnings multiples, and while we do expect growth at Starbucks we did note that revenue growth was less attractive and that it’s not sustainable to rely on net margins continuing to increase. As a result, we’re skeptical that the current valuation is appropriate.

Disclosure: I own no shares of any stocks mentioned in this article.