Starbucks Corporation

SBUX Details

Starbucks Corporation (NASDAQ: SBUX) is a speciality coffee roaster, marketer, and retailer operating in 84 countries. It has three segments: North America (which includes the United States and Canada); International (which includes China, Japan, Asia Pacific, Europe, the Middle East, Africa, Latin America, and the Caribbean); and Channel Development (which includes China, Japan, Asia Pacific, Europe, the Middle East, Africa, Latin America, and the (which includes China, Japan, Asia Pacific, Europe, the Middle East, Africa, Latin America, and the Caribbean). Coffee and other beverages, complimenting meals, packaged coffees, single-serve coffee items, and a targeted range of merchandise are sold at company-operated and licenced sites in North America and worldwide. The Channel Development sector sells packaged coffee, tea, and ready-to-drink beverages to clients outside of Company-operated and licenced establishments.

Latest News:

• Quarterly Dividend: On May 03, 2022, the company declared a quarterly dividend of USD 0.49 per common share, payable on May 27, 2022, to shareholders of record on May 13, 2022.
• Driving Growth Through Investment: On May 3, 2022, SBUX announced that it would make more investments in partners and stores for prioritized areas such as improved pay, modernized training and collaboration, retail innovation, and the celebration of coffee, bringing the total investments in this fiscal year to approximately USD 1 billion. This move allows Starbucks to satisfy record consumer and partner demand in a COVID-affected operating environment.

Q2FY22 Results:

• Double Digit Growth in Topline: The company reported a YoY growth of 14.51% in total revenue to USD 7.64 billion in Q2FY22 (ended April 03, 2022) from USD 6.67 billion in Q2FY21, driven by 11.03% growth in Company-operated stores.
• Increase in Profitability: In Q2FY22, SBUX' net income increased to USD 674.5 million from USD 659.4 million in Q2FY21.
• Cash and Debt Position: The company had USD 4.00 billion in cash and cash equivalents (including short-term investments) as of April 03, 2022, and total debt of USD 16.01 billion.

Key Risk:

• Dependence on North America Segment: In FY21, revenue from customer sales accounted for 70% of consolidated revenue in the North America operating segment. As a result, if this segment lags, declines, or does not recover effectively in the post-COVID-19 climate, the company's bottom line could suffer.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SBUX' stock price has fallen 34.80% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 73.38 to USD 126.32. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 82.42.

Considering the correction in the stock price, strong fundamental performance, associated risks, and current valuation. We recommend a "Hold" rating on the stock at the current price of USD 74.38, down 2.76% as of May 09, 2022, at 10:27 AM PDT.

Three-Year Technical Price Chart (as on May 09, 2022, at 10:27 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: All forecasted figures and industry information have been taken from REFINITIV.  

Note 3: The report publishing date is as per the Pacific Time Zone.