Starbucks Corporation (SBUX) made headlines today when it announced a massive five-year plan to double food sales in the U.S.
Starbucks is one of the most well-known coffee chains around the world. Since its humble beginnings in Seattle almost 30 years ago, Starbucks has expanded to over 21,000 stores and operates in 65 countries. While the Starbucks name has long been synonymous with coffee, the chain has slowly been adding more gourmet food products, like sandwiches and pastries, to its menu.
Today’s big news was that Starbucks is looking to double its U.S. food sales to $4 billion by fiscal 2019. With this new plan, Starbucks estimates total revenues will reach $30 billion in 2019, a 46% increase from fiscal year 2014 revenues. Starbucks plans to increase revenue by adding more meal options and alcoholic beverages to the menu, in an effort to entice the dinner crowd.
Given the buzz surrounding this plan, is now a good time to buy SBUX?
I’d take a closer look Starbucks’ fundamentals before jumping on the Starbucks bandwagon. Looking ahead to the fourth quarter, consensus earnings estimates seem lackluster. Starbucks is headed for just 12.7% annual earnings growth, a much slower pace than the industry average of 36.1% forecasted earnings growth.
For the first quarter, the estimated growth rate improves to 21.4%, but this still underperforms the 50.8% industry average. The bottom line is that while the five-year plan may encourage growth over the long run, Starbucks’ near-term prospects remains tepid.
And after running SBUX through Portfolio Grader, Starbucks is clearly a little too risky to consider right now. If you visit the SBUX stock report page, you can see that the stock has fallen from a “B-rated buy” to a “D-rated sell” over the past 12 months. In fact, Starbucks was upgraded to a “hold” just this week.
The area where Starbucks struggles is institutional buying pressure, which is why Starbucks earns a “D” for its Quantitative Grade. And as mentioned above, Starbucks’ fundamentals are a mixed bag. So, SBUX earns a “C” for its Fundamental Grade.
Starbucks’ plan could possibly help boost company profits over the next five years, but for now, SBUX stock is too volatile to earn a buy recommendation from me. SBUX is a “C-rated hold.”
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
