Starbucks Corporation (NASDAQ:SBUX)
Stock Analysis

Description

Starbucks is a coffee giant that has become a staple in todays world. They have crushed the market and become a value stock instead of a growth stock. They have increased their dividend in recent years. While they are well established in North America, they are expanding into markets around the rest of the world. They predict that there will be more Starbucks in China than in the U.S.

In recent years they�ve lowered their forward growth guidance, albeit still with rather large growth rates, and boosted their dividends and share buybacks. In other words, less focus on investing in growth, and a greater focus on giving money back to shareholders.

That gives it some short-term headwinds and a healthy reduction in valuation multiples, but over the long-term they�re likely poised for strong returns once again from the combination of moderate growth and a high shareholder yield. Some growth investors have rotated out of this name while value and dividend investors have rotated in.

With a saturated market in North America, Starbucks is focused on expanding in the rest of the world, with an emphasis on China. With China�s massive 1.4 billion population and growing middle class, Starbucks management expects to eventually have more Starbucks locations in China than the United States. They are also improving their quality with Reserve Roastery locations, like the one in Seattle where people would spend 4 times the money to experience premium drinks and food as well as the visual setting.

Starbucks interest coverage ratio is over 40 (they run very lean, producing free cash flow that covers debt interest expense). Their book value is very low, as Starbucks generates high returns on invested capital versus their assets. Their excellent debt/income ratio is less than 1 (they could pay their long-term debt off with about one year�s worth of net income).