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Is Starbucks a buy after earnings?

It’s time to talk about another iconic brand. Here is the breakdown on $SBUX, otherwise known as Starbucks.

Current Price: $114.16

52/Wk High: $118.98

52/Wk Low: $70.65

Dividend: $0.45 / 1.58% Yield

Market Cap: $134.5 Billion

Read below for the breakdown!

Starbucks is one of the best-known coffee retailers and roasters in the world, with over 32,943 global stores and locations.

Sifting through Starbucks stock price according to TREFIS (@trefis) data, 56.4% is based on the Company Operated Stores segment.

Furthermore, the Licensed Store segment represents 33.5% while the CPG, Food Services, & Other segment represents 10%.

Throughout COVID-19 Starbucks sales have been negatively affected, but the pandemic has pushed the company to introduce more ordering solutions such as digital ordering which has been successful.

Starbucks stock has performed well throughout the past year, rallying a strong 58%. On the flip side, Starbucks has been rather flat on a year-to-date basis, moving just over 6% to the upside.

Digging into the numbers Starbucks beat Q2 2021 expectations with an EPS of $0.62, better than the analyst’s EPS consensus estimate of $0.53. On a year-over-year basis EPS improved by 93.75%.

Revenues improved as well, with Q2 revenues totaling $6.7 billion, representing a solid 11.21% increase on a year-over-year basis. For reference, the Q2 2020 revenues level was $6.0 billion.

Sifting through revenues, the Americas segment delivered $4.6646 billion in revenues (Up 8% YoY) while the International segment revenues totaled $1.6109 billion (Up 42% YoY).

Breaking down sales, global comparable store sales increased by a strong 15%, which was motivated by a significant 19% increase in average ticket.

United States comparable store sales increased 9% year-over-year and China comparable store sales jumped by 91% year-over-year. Given the increase in US store sales, leadership noted that US sales officially fully recovered.

Digging into the Americas segment, the segment turned out an operating income level of $905.3 million, representing a strong 46% increase in operating income.

The segment also delivered a stronger operating margin of 19.4%, representing a 510 basis point increase from the Q2 2020 operating margin of 14.3%.

Rounding out the Americas segment, Starbucks saw a decline in store count by 1%, bringing total Americas store count to 18,120.

Shifting into the International segment, the segment turned out a solid operating income of $251.5 million, representing a strong improvement over the $15.4 million loss in Q2 2020.

The segment also turned out a strong operating margin of 15.6%, representing a 1,700 basis point improvement over the -1.4% in Q2 2020.

International store count increased by 8% as well, bringing International store count to a larger 14,823.

Management was upbeat.

“I am very pleased with our progress to date in fiscal 2021, as our second quarter results demonstrated impressive momentum in the business with full sales recovery in the U.S.” CEO Kevin Johnson said.

Guidance was solid as well, with management expecting FY 2021 revenues to total $28.5 billion to $29.3 billion and GAAP operating margin to land within a range of 15% to 16%.

Shifting into the balance sheet the numbers need work.

Total Debt: $14.649 Billion

Total Liabilities: $36.026 Billion

Total Assets: $28.372 Billion

Cash & Short Term Inv: $4.004 Billion

On a valuation basis, Starbucks does trade at a premium.

Price to Earnings: 136.66x

Forward Price to Earnings: 31.57x

Price to Sales: 5.64x

Price to Cash Flow: 32.11x

Management has been effective.

Return on Invested Capital: 4.85%

Return on Assets: 3.57%

Given the numbers the analysts are bullish with a mean price target of $125.09/share, representing a 9.21% upside.

The high price target is $140.00/share, representing a 22.23% gain, while the low price target is $104.00/share, representing a -9.20% loss.

The big money is bullish as well with 67.50% of Starbucks being owned by institutions. Top holders include The Vanguard Group, BlackRock Institutional Trust, and State Street Global Advisors.

According to the six-month charts the MACD is moving with downside momentum within a range of 1.57 down to 1.04.

The six-month charts are also indicating an RSI of 51.37 and CCI of -51.201, both of which are trending downward.

In short, Starbucks ($SBUX) is a solid long term bet with recovering sales and a reliable management team. On the other hand, US location growth and the balance sheet could be improved.


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.

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