Starbucks (SBUX) Stock – 5 Reasons to Buy

by Jeff Reeves | June 9, 2010 7:08 am

The bull market isn’t gone, it’s just been taking a bit of a coffee break. One of the best stocks to buy in the last year has been Starbucks (SBUX[1]), a coffee icon around the world and savior to caffiene junkies everywhere. SBUX stock is up 12% year-to-date as of today’s closing bell and has significantly outperformed other restaurant and foodservice stocks in recent months. What’s more, in the last year shares are up over +70% — blowing away the +15% tallied by the Dow. SBUX stock is still going strong and there are plenty of reasons to buy.

Here are five of the top reasons to buy Starbucks:

New Focus on Retail Sales. Not content to reach consumers through its own network of some 8,800 stores, Starbucks is developing a comprehensive line of products for sale at your local grocery store or convenience mart. For instance, in September SBUX released its Via gourmet instant coffee line.  The latest new Starbucks product release is gourmet ground flavored coffees, which the company plans to sell at hundreds of thousands of grocery stores beginning this month. The new blends, called “Starbucks Natural Fusions,” include vanilla, caramel and cinnamon flavors. And lets not forget a new summer lineup of ice creams in your grocer’s freezer with delectable flavors like Strawberries and Crème Frappucino.

Starbucks Has Shown Strong Earnings. About two months ago, the SBUX reported a remarkable eight-fold increase in second-quarter earnings. Specifically, on April 21 Starbucks posted fiscal Q2 profit of $217.3 million, or 28 cents per share. This blew away the $25 million, or 3 cents per share, the company earned in the same quarter a year ago.  Starbucks sales also rose significantly to top $2.53 billion on the quarter.  Both bottom- and top-line numbers easily bested consensus forecasts for 25 cents per share on revenue of $2.41 billion. Starbucks earnings like these are very powerful reasons to buy SBUX stock.

SBUX stock has enhanced outlook. There’s reason to expect another great earnings report from the company soon to follow up this April report. Starbucks also boosted its forecast for the full year’s adjusted profit.  The company now expects to earn between $1.19 per share and $1.22 per share. That’s up substantially from the previous forecast of $1.05 per share to $1.08 per share. The upwardly revised outlook also topped consensus forecasts for full-year profits of $1.12 per share.

SBUX Focusing on Smart Growth: The coffee juggernaut is not aiming for seven new stores a day, a clip it reached three years ago after setting a pretty unrealistic goal of 30,000 stores worldwide. SBUX has since closed nearly 900 stores and eliminated more than 34,000 jobs since that 2007 peak. Instead, a slimmed-down Starbucks is targeting markets it had previously overlooked such as foreign and emerging markets, as well as partnerships with foodservice and restaurant companies with its lower-priced Seattle’s Best brand[2].

Starbucks Pays a Dividend: The first-ever Starbucks dividend[3] was paid out on April 22 to the tune of 10 cents a share. While at a current annualized dividend yield of 1% or so this is not a reason alone to buy the stock, it is a nice bonus — like the whipped cream on a tasty mocha.

Source URL: https://investorplace.com/2010/06/starbucks-sbux-stock-to-buy-earnings-sales-coffee/

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