Opinions
Lorne Steinberg
Starbucks
SBUX-Q
PAST TOP PICK
Mar 06, 2025
Stock price when the opinion was issued
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Shares are up 27% after they changed CEOs, but some analysts aren't sold. Bears say turnarounds take time and are expensive, and earnings estimates need to come down. He agrees with the bulls who feel that operating margins will improve, though earnings estimates need to come down. He has a large position, but hasn't sold a share on the CEO news. He expects either flat or weak earnings next year, but is willing to hold on as long the company comes out better the following year.
Starbucks Corporation, together with its subsidiaries, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America, International, and Channel Development. Its stores offer coffee and tea beverages, roasted whole beans and ground coffees, single serve products, and ready-to-drink beverages; and various food products, such as pastries, breakfast sandwiches, and lunch items. The company also licenses its trademarks through licensed stores, and grocery and foodservice accounts. The company offers its products under the Starbucks, Teavana, Seattle's Best Coffee, Evolution Fresh, Ethos, Starbucks Reserve, and Princi brands. As of October 3, 2021, it operated 16,826 company-operated and licensed stores in North America; and 17,007 company-operated and licensed stores internationally. The company was founded in 1971 and is based in Seattle, Washington. Social media mentions are up 167% in the past 24h.
Buy on this pullback. This was down 13% in 2022, and 2% in 2023 and another 2% this year. It's rare for SBUX to be down three straight years. We'll know when they report Jan. 28 if the turnaround is working. They will do $1 billion in revenue, -1% YOY, $1.12 billion in EBIT or -23% YOY. Analyst expectations are very low. Shares are trading at their 10-year median valuation. They just hired the best QSR CEO who will turn things around. At $80-65, he will add a lot more shares.
Going back to basics. In only 6 months, new CEO has put his stamp on the business. Should be back to double-digit growth next year. Early stages of a turnaround. Incredible franchise. Because people put $$ on their SBUX apps (to the tune of ~$3B), it's making money off this float just like a bank.
Focus includes getting orders through much faster, but creating a better and more welcoming atmosphere. So much about the retail experience today is about the vibe.