Ignore Starbucks’ Top Line Miss, Buy SBUX

Advertisement

I have terrible news to report. Starbucks (SBUX) reported Q4 sales of $4.18 billion, but it fell $60 million short of estimates.

SBUX-stock-starbucksStop. The. Espresso. Machine.

The world is coming to an end when a big, important company like SBUX stock misses on revenues, right? Actually, no. The reason Starbucks stock only gave up 3% of its price was because of all the other amazing news.

Earnings grew 23% year-over-year. Same-store sales (comps) grew 5%. SBUX said 2% of the 5% came from their new offerings of their recent acquisitions, namely Teavana and La Boulange.

Starbucks’ operating margin increased 280 basis points to 20.5%. All of SBUX stock’s “other stuff,” which includes packaged coffees, Tazo tea, VIA and K-Cups sold through third parties, saw revenue grow 12% year-over-year to $399.1 million.

That takes us to the full-year numbers, where revenue increased 11% to $16.45 billion on 6% same store comps. Adjusted earnings were $2.66 per share, up 21% from the prior year. Oh yeah, SBUX also increased its dividend by 23%, up $1.28 per share per year.

You’re starting to see why I couldn’t care less about the SBUX revenue miss. What about FY15 — any reason to worry, there? Starbucks expects revenues to grow 16-18% in fiscal 2015, including 6-7% coming from the $941 million buyout of its Japan subsidiary. SBUX still sees mid-single-digit comps, and is going to open — are you ready? — yet another 1,650 stores across the world.

I remember when SBUX was trying to get to 2,000 stores by the year 2000. Now the company is opening that many in just one year! FY14 earnings are estimated to be $3.08 to $3.13 per share, or a 16-18% increase.

SBUX Stock Powered by Great Leadership

Starbucks stock is benefiting from the great CEO Howard Schultz, and his ever-evolving vision of what SBUX is capable of. He is constantly innovating, which has kept Starbucks a powerful growth stock.

Heck, look at gift cards. He knew consumers preferred these over actual hard goods, and now gift card sales are hitting records — $1.4 billion in card loads. The company continues to expand its mobile and digital platforms: 16% of all SBUX transactions are now being done via a mobile payment system, or about 7 million transactions.

The international appeal of the company is surprising me. I was never sure if SBUX would catch on in China or Japan, and yet the former now has 1,400 stores and the latter has 1,000.

Coming soon, a 100-store test of Starbucks “Reserve Rooms”, which will be upscale versions of Starbucks stores that only serve reserve, or “high-end”, coffee. It’s kind of like a wine bar, but with coffee. My gut instinct is that this will never work. But that would be second-guessing Schultz, so I’ll … ahem … reserve judgment.

So considering how many great things SBUX has going for it, why should I be upset about a 1.5% revenue miss?

Starbucks stock is a winner in so many ways, and I expect that to continue. Starbucks has $1.84 billion in cash and short-term investments, so there is plenty of liquidity to experiment with a Reserve Room concept. The $2.04 billion in debt is cheap, with interest not costing much more than 3.2% in interest annually.

On FY15 earnings of $3.10 per share, the stock trades at 24.5 times earnings. Analysts see 18% EPS growth over the next five years annualized. I give SBUX a 25-30% premium for its global brand name, its vision, its cash flow and its cash on hand.

That means Starbucks stock is fairly valued, give or take a few dollars. Owners of SBUX stock should enjoy about 18% returns each year, and that’s great for a growth stock. Don’t whine about the revenue miss; buy SBUX and thank me later.

As of this writing, Lawrence Meyers was long SBUX. He is president of Asymmetrical Media Strategies, a crisis PR firm, and PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/sbux-starbucks-earnings/.

©2024 InvestorPlace Media, LLC