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There’s Absolutely No Reason to Buy Starbucks Corporation (SBUX) Stock Right Now

SBUX stock is right where it should be, but there's no urgency to buy it


It’s a tough environment out there right now. Many companies that have reported solid third-quarter results have been met with selling — and a lot of it — but Starbucks Corporation (NASDAQ:SBUX) seems to have bucked that trend. Or perhaps we should say “Starbucked” it.

SBUX reported fiscal fourth-quarter results after the close on Thursday, and the shares closed out the week higher.

Investors breathed a sigh of relief that the company hadn’t fallen victim to the rough patch the restaurant industry is currently in.

Starbucks Earnings Rundown

Earnings of 56 cents a share climbed 16% year-over-year, besting estimates for 55 cents, and revenue of $5.7 billion was just ahead of the consensus at $5.68 billion. The company opened 690 new stores in the quarter, bringing the total to a whopping 25,085 across 75 countries.

That’s the good news. One area of disappointment — and it’s a key one — was same-store sales. While results in the Americas and China were better than expected, up 5% and 6%, respectively, same-store sales in the United States came up short at just 4%.

Wall Street had been looking for 4.9%. COO Kevin Johnson cited “challenging operating conditions” as well as the election for the cause of the weakness. Traffic was also down a percent in the quarter (although adjusted to account for the impact of SBUX’s loyalty and rewards program traffic actually grew 1%), and the average ticket price increased 6%.

Bottom Line on SBUX Stock

Some of that is a little bit confusing, but here’s what the results tell me: Starbucks is in a slumber, and its fearless leader, Howard Schultz, is so enamored with technology and politics that he’s taken his eye off both the ball and his competitors. The company’s experience is no longer new, and is in fact becoming quite stale.

I do like that management boosted their dividend 25% to 25 cents a share. And I’ll also say that international sales were encouraging. However, it’s clear that the company needs a greater sense of urgency.

From a valuation point of view, SBUX is right where is should be. The stock is down 11% so far this year, and while there’s probably little downside risk in owning it, there is also no urgency to buy.

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