Starbucks' Valuation More Vulnerable Than Its Brand
Investors may be worried that Starbucks is deviating too much from its core competency with simultaneous La Boulange and Evolution Fresh initiatives, notes Hottovy. However, investors have previously predicted that a pullback for Starbucks' valuation and earnings was inevitable, based on disappointment with the CPG model and other initiatives, when in fact Starbucks has remained a growth stock for far-longer than many expected.
"A few years ago, I would have said they are pretty far along in their growth," says Hottovy. "They've really dialed back the clock on that and how big the business can grow," he adds.
Since returning to Starbucks for a second stint as CEO in 2008, Schultz has more than doubled the roasters' shares, while halting its store growth. In the past four years, Starbucks has only added 323 stores as net income has grown to $1.25 billion from $315 million, and revenue has risen over 12%.
"As Starbucks embarks on its new era of growth, we remain cautiously optimistic that SBUX can continue to simultaneously execute its strategy to drive strong
Herzog calls 2012 "a transitional year" for Starbucks, but says the company is fairly valued given that some growth initiates may cannibalize sales and create more complex operations.
Even those with a critical eye cast on Schultz's growth optimism see reason for his bullishness.
"We believe Starbucks has limited earnings upside potential in its fiscal third quarter given softness in Europe and the impact of the acquisition of La Boulange,"wrote William Blair analyst Sharon Zackfia in a July 16 note to clients. "
Here's another take on Starbucks in a peak coffee era.
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-- Written by Antoine Gara in New York