Starbucks Corporation

SBUX Details

Starbucks Corporation (NASDAQ: SBUX) is a speciality coffee roaster, marketer, and retailer with operations in about 84 markets worldwide. It operates in 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 Caribbean). Company-operated and licensed locations in North America and internationally sell coffee and other beverages, complementing foods, packaged coffees, single-serve coffee items, and a targeted range of merchandise. Outside of its Company-operated and licensed locations, the Channel Development sector sells packaged coffee, tea, and ready-to-drink beverages to customers.

Latest News:

• Reappointment of Howard Schultz: On April 4, 2022, SBUX reappointed its founder Howard Schultz, as its CEO and a director on the Board of Directors. The company developed from 11 stores to more than 28,000 locations in 77 markets worldwide during Schultz's preceding four decades as CEO and Chairman.
• Quarterly Dividend: On March 22, 2022, the SBUX board of directors approved a quarterly dividend of USD 0.49 per common share, payable on May 27, 2022, to shareholders of record on May 13, 2022.

Q1FY22 Results:

• Growth in Topline: The company reported a YoY growth of 19.28% in net revenue to USD 8.05 billion in Q1FY22 (ended January 02, 2022) from USD 6.75 billion in Q1FY21 (ended December 27, 2020), attributable to 17.39% growth in Company-operated stores.
• Improvement in Profitability: In Q1FY22, SBUX's net income dropped to USD 1.78 million from USD 36.36 million in Q3FY20.
• Cash and Debt Position: The company had USD 71.92 million in cash and cash equivalents as of September 30, 2021, and total debt of USD 248.84 million.

Key Risk:

• Dependence on North America Segment: Revenues from sales to customers in the North America operating segment accounted for 70% of the consolidated revenue in FY21. As a result, if this segment lag or falls or does not recover satisfactorily in the post-COVID-19 environment, it could harm the company's bottom line.

Outlook:

Fiscal Year 2022 Financial Guidance (Source: Company Website)

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's stock price has fallen 33.18% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 78.92 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 98.56.

Considering the significant correction in the stock price, recent appointment, robust dividend yield, strong financial performance, positive outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the closing price of USD 79.50, down 1.75% as of April 14, 2022.

Three-Year Technical Price Chart (April 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.