Starbucks: Long-term Investors Should Consider This Company

• Starbucks is a company that has mastered technology well as it grows.
• There is a management change at the company but investors shouldn’t be too worried about that.
• As a long term investor this is a company I like buying when there is a market sell off.

Starbucks Corp.(SBUX) engages in the manufacture and sale of coffee and tea. It operates through the following segments: Americas; Europe, Middle East, and Africa; China/Asia Pacific; Channel Development; and Other. This company is very well run and is growing at great rate and has rewarded investors very well. Starbucks is a well known brand around world and is in the top 100 of the most valuable global brands. The company has a market cap of $83.93 billion and has an enterprise value of $85.32 billion (Yahoo Finance).

The company is growing revenue at 16% year over year and there is still more room for growth as the company expands in China and India. Starbucks is also still strong in the United States with same store sales growing at 4%. Starbucks is also executing well in the digital & mobile space. Mobile payments accounted for 6% of sales last earnings report and it is growing at a tremendous pace. The graphic below from Starbucks’ Presentation at the Goldman Sachs Global Retailing Conference shows how they growing in the mobile space:

Starbucks is essentially a technology company that makes coffee a sentiment that is shared by Jim Cramer (former hedge fund manager, and best-selling author. He is also host of CNBC’s Mad Money). Also when the company reported its 2016Q4 earnings, management also revealed their 2017 guidance. According to guidance released the company expects double digit growth in revenue and forecasts it will open 2,100 stores around the world.

There is a big change happening at Starbucks in terms of management. On December 1,2016 Starbucks announced that Howard Schultz will be stepping down as CEO and Kevin Johnson(President & COO) will be taking over in April 2017. When this news broke out the shares of Starbucks dropped 3% instantly as investors that panicked it would be like 2000 all over again. However, this time it’s different Howard will still be Chairman of the Starbucks Board and will be focusing on a new strategy for the company. Howard Schultz will be looking to turn Starbucks’ Reserve-branded coffee bars into premium destination restaurants. This strategy was also revealed at Goldman Sachs Global Retailing Conference. The graphic below shows the company’s future strategy:

Although Howard Schultz is stepping down investors shouldn’t worry too much. Schultz is working on the next growth area for the company. Kevin Johnson has great experience as he has worked 16 years at Microsoft and was also CEO at Juniper Networks. Kevin Johnson will improve the technology at the company and will grow the company’s mobile platform. The company is also improving operating margins(which shows efficiency) as the company grows.

This is a company I like very much and as a long term investor I would increase my position if the market sells off. The company is global and is prone currency headwinds (strong US Dollar). Any trade war with China could hamper growth for the company. Coffee commodity prices can affect margins as well as rising wages in the restaurant space. The company is not cheap as it trades at 23x forward earnings which is pricey for a coffee company. The stock is trading at $57.76/share and has an average price target of $64.73(12% upside) according to Yahoo Finance. The stock has a dividend of $1.00/share(1.73% yield) and with the amount of cash Starbucks is generating this dividend has room for growth. The company reports earnings on Thursday and if the stock sells off and goes below $54, I will be looking to add more to my position. As a long term investor the stock will be much higher in the future as management executes and the company grows. This company has a very loyal customer base.

Disclosure: Cresco Investments has a position in Starbucks Corp.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.