Savoring Starbucks (SBUX): Molto Grande Growth

 

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 years. 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 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:

 

STARBUCKS (SBUX)	Cy Lynch	Armin Fields	Take Stock
Sales Growth	15.00	19.00	20.00
EPS Growth	16.90	18.00	19.30
High PE	35.0	33.0	30.0
High 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	$23.00                            (low PE x low EPS)	$16.21                         (low PE x low EPS)	$13.32                                (low PE x low EPS)
Up/Down Ratio	11.6	3.3	1.8 (imputed)
Total Return	18.3%	18.3%	14.2%
SSG Date	7-12-07	9-10-07	9-7-07
Price	$25.96	$27.04	$27.44
Buy Under	n/a	$27.83	$26.61
Sustain Growth	n/a	18.8%	n/a
Last Q data	2Q 2007	3Q 2007	3Q 2007
Date Source	S&P	S&P	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

 

 

 

 

 

- I don’t drink coffee, but am in love with Starbucks dark chocolate grahams.

 

 

 

 

Coach (COH) : Better Investing’s Growth Company of 2007

For the third year in a row, Richard Chauncey of Rochester, NY, nominated the winning stock in Better Investing’s Growth Stock of the Year contest.

This year, he won with Coach (COH), a designer, manufacturer and retailer of high-end women’s accessories, primarily leather handbags. In 2006, Richard won with Ceradyne (CRDN) and, in 2005, with Cognizant Technology Solutions (CTSH).

Richard sure knows how to pick growth stocks and, perhaps more importantly, knows what the judges want to read. Congratulations to Richard!!

When he did his SSG in March, he got a 1.6 Upside/Downside Ratio and a 11.2% Total Return which do not satisfy the SSG Buy Criteria. However, the contest does not require stocks to be SSG Buys and only looks at historical results as well as the quality of the SSG (this criteria is not explained).

COH’s price has come down some $5.00 per share since last March and I currently show it as a SSG Buy, but not StockCentral’s Take Stock Online.

Analysts are now estimating around 20% EPS growth for the next 5 years (First Call & S&P exactly) with Value Line high at 23.50% and Zacks low at 19.95%; Reuters less one Standard Deviation is 18.05% (20.21 – 2.15). All three SSGs used similar EPS estimates.

Here’s how our SSGs compare:

	Richard	Armin	Take Stock
Sales Growth	17.50%	17.00%	20.00%
EPS Growth	17.00%	17.00%	16.31%
High PE	28.0	29.0	28.5
High Price	$84.80	$107.60	$102.28
Value Line Hi Price	$55-80	$70-110	$70-110
Low PE	15.9	14.8	12.1
Low Price	$27.60 [2006 low price]	$25.00 [growth comp option]	$21.18 [growth comp option]
U/D	1.6	3.2	2.47 [imputed]
TR	11.2%	19.3%	18.1%
Price	$49.80	$44.53	$44.53
Buy Under	N/A	$45.28	$41.48
Date	3-9-07	8-31-07	9-3-07
Data Source	S&P	S&P	Hemscott

The primary reason I got a SSG BUY, but Take Stock did not, is our Low PEs: mine is based on the last 5 years, proportional after I reduced my High PE, while Take Stock’s is based on the lowest Low PEs during the last 10 years.

- Armin

ps: for my 11-20-06 analysis of Richard’s SSG for Ceradyne (CRDN) and for my 9-5-06 critique of Cognizant Technology Solutions, click here to get to my 2006 posts and then scroll down: http://stock-analysis-with-ssg-and-pert-a.blogspot.com/search?updated-min=2006-01-01T00%3A00%3A00-08%3A00&updated-max=2007-01-01T00%3A00%3A00-08%3A00&max-results=13