3 Reasons Why Starbucks Stock Will Be Even Better in 2013

by James Brumley | November 5, 2012 1:27 pm

If you like Starbucks (NASDAQ:SBUX[1]) now, you’re probably going to love it a year from now.

The world’s most prolific coffee house is about to expand its footprint in more ways than one, and investors willing to hang on for a while stand to reap a reward that most other stocks won’t be able to match.

Numbers Don’t Lie

Never let it be said that the market isn’t interesting or surprising.

While chatter of re-entry into another recession has been prolific over the past several weeks, Starbucks’ third-quarter results suggest it’s facing anything but. The coffee house chain earned 46 cents per share on $3.36 billion in revenue, topping estimates of 45 cents and $3.33 billion. Better still, last quarter’s revenues were far stronger than the year-ago numbers of $3.03 billion, and earnings were almost on par with 2011 Q3’s 47 cents.

It’s just part of a very long string of growth, with 2012 set to be the ninth year in 10 that Starbucks has posted higher sales and profits. That’s a track record most other companies envy, and there’s no end in sight.

Don’t think SBUX is about as bulletproof as a company can be? Then sip on this: Last Monday, immediately after Hurricane Sandy had shut down New York City’s transit system and the world’s highest-profile stock exchange, some New Yorkers were trekking blocks[2] to visit the one Starbucks they knew was still open — the one at the Marriott Marquis on West 45th Street.

Just to put that in perspective, people weren’t going to work because of the stunningly dangerous weather conditions, but they were going to get coffee.

It’s safe to say Starbucks has turned a “want” into a “need.”

With that in your back pocket, Starbucks’ future might look even better than its recent past as it plans on meeting those “needs” on a much larger scale in 2013.

Looking Ahead

As impressive as 2012 has remained for Starbucks, investors haven’t even seen the best of what’s to come. Prospective or current SBUX shareholders can look forward to (in order of importance):

Asia: As it stands right now, Starbucks intends to open 1,300 new locations in 2013. Only 600 of them will be in the United States, however. The other half of the new stores scheduled for next year will be in Asia, with most planned for China. That’s huge. The buildout will bring Starbucks’ exposure in China to 1,000 stores by the end of next year, as well as bring Japan’s total number of Starbucks coffeehouses close to 1,000.

All told, the 1,300 new stores in the works will increase the company’s current total store count by about 7%. There’s little doubt they’ll be profitable. The company remained profitable even when the recession was at its worst in 2008. Patrons braved hurricanes to buy its coffee, for cryin’ out loud.

Verismo: There’s little doubt as to the goal here — Starbucks is taking dead aim at Green Mountain Coffee Roasters (NASDAQ:GMCR[3]) by introducing its Verismo device[4]. The Verismo can make single-serving lattes, espressos and coffee at home that are just as good as what consumers will get in Starbucks stores, firing a shot across the bow of Green Mountain’s immensely popular Keurig machines.

Investors should take any forecast surrounding the Verismo with a grain of salt, but suggestions that the device could bump up per-share earnings by 10% or more don’t seem out of line. Green Mountain built the idea into a $2 billion business (annually) from nothing; surely Starbucks will be able to leverage its name and snipe at least several hundred million dollars from that market.

Square: OK, it’s not Square itself that’s going to make or break Starbucks, but rather, what Square indicates.

Not familiar with the device? It’s possible you are, and just don’t realize it. Square is the small, block-shaped device that affixes to a smartphone, essentially turning the handheld device into a mobile credit card reader so buyers and sellers can make and take payments on the fly.

It’s not the device that’s going to make Starbucks more marketable, however. It’s the fact that Starbucks stores can now take payments from patrons that use Square’s ‘Wallet’ app[5]. In simplest terms, the Square/Starbucks relationship makes it easier for coffee drinkers to buy coffee, which ultimately drives more sales.

It’s not the first mobile wallet/payment service Starbucks has added to its payment repertoire, and it probably won’t be its last. But the fact Square is part of the ecosystem underscores that Starbucks is in touch with its customer base, which is increasingly “going mobile.” For reference, Gartner says mobile payments will total $171.5 billion by the end of the year — up 62% from last year’s total.

Bottom Line

The facts and figures speak for themselves, but if they don’t speak to you, maybe this will: Most companies that revised 2013’s outlook when unveiling Q3’s numbers revised them downward. Starbucks, however, was one of the few that upped its outlook.

It’s unlikely any company would want to set its shareholders up for disappointment, so the fact that Starbucks raised the bar on itself speaks volumes.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  2. some New Yorkers were trekking blocks: http://www.huffingtonpost.com/2012/10/30/last-starbucks-standing-during-hurricane-sandy-mobbed-by-thirsty-midtwon-caffeine-addicts_n_2045153.html
  3. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  4. introducing its Verismo device: https://investorplace.com/2012/03/starbucks-single-serve-coffee-may-kill-green-mountain-sbux-gmcr-keurig-verismo/
  5. take payments from patrons that use Square’s ‘Wallet’ app: https://investorplace.com/2012/10/starbucks-stores-to-roll-out-square-payments-next-month/

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