Starbucks Corp.

-0.09 (-0.12%)
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Why Starbucks is Crushing It


Starbucks Corporation (SBUX)
54.16 +0.23 (0.43%)
Sector: Consumer Services
Published by Capital Market Laboratories on 2015-06-22

What does this rating mean?
3Mo: +10.8%   |   6Mo: +36.4%  |  12Mo: +40.3%

10DMA: $52.7  |  50DMA: $50.8  |  200DMA: $43.9
What does this rating mean?

30-day Implied Volatility: 17.8%
Implied Stock Range: ($52.00, $56.40)
What does "implied stock" mean?

Starbucks is one of very few companies that has outstandingly strong fundamentals and in the near-term has strong technicals as well. The company has been called a "marvel" by some as it grows in an industry that is facing more and more competition. SBUX has sort of "side-stepped" the big-brand issues by raising wages and continuing to be at the forefront of some pretty cool payment technologies. I mean, who doesn't use their smartphone to pay for their morning latte (OK, I don't, but besides me).

The company is also expanding Mobile Order & Pay (the order and pay ahead so you don't wait in line platforms) that was first introduced at the end of 2014. It's a wonderful example of the company understanding its customer base and making them feel taken care of. That's very "un-big-brand" like in the food industry.

But, if you're looking for a single silver bullet, there really isn't one. The firm has controlled costs, kept employees happy, maintained a terrific brand, kept input costs steady and consistently grown and expanded both existing store sales and new stores. The company is now expanding upon its Teavanna (tea) brand purchase by using its own existing stores to sell the tea, rather than just opening new Teavanna stores.

SBUX's revenue (TTM) has risen for twenty consecutive quarters, and each time it has been a new all-time high. Earnings are at all-time highs as are operating margins and at the same time, capital expenditures are at all-time highs, while competitors (like McDonald's) are cutting CapEx as quickly as possible. The firm really is a "marvel."

Technicals | Support: 36.095 | Resistance: Stock is Through Resistance&nbsp &nbsp
Golden Cross Alert: The 50 day MA is now above the 200 day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

SBUX has a five bull (high rated) technical rating because the stock is trading above its 10-, 50-and 200- day moving averages and even though the stock is down on the day, the 10 day MA is above the 50 day MA (also called a "swing golden cross").

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-07-23 $0.41 $4,859.0 M $4,868.3 M $4,563.5 M Provided by ZACKS

Let's look at the core elements that drive SBUX fundamental rating; and they are exceptional.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 17,701 15,638 14,010

Operating Margin (QTR) 1.188 1.18 1.16 RISING

Net Income (TTM US$ Millions) 2,579 153 1,514

Levered Free Cash Flow (TTM US$ Millions) 2,104 1,694 1,230 RISING

Capital Expenditures (TTM US$ Millions) 1,264 1,170 1,027 RISING

Stock Returns and Chart

SBUX is up +10.8% over the last three months and up +36.4% over the last six months. The stock price is up +40.3% over the last year.

It has smashed through technical resistance and is staring at a new all-time high.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
Click here to interact with this stock chart

Now let's examine the visualizations of the critical financial measures.

Revenue (TTM US$ Millions) 17,70115,63814,010

Revenue (TTM) has increased for twenty consecutive quarters (five or more triggers a "trend"). In the time series chart below, we can see the consecutive quarter growth.

Revenue over the trailing twelve months (TTM) for SBUX is up 13.2%. The two-year growth is 26.3%. Compare that to McDonald's which has seen revenue drop by over 5% year-over-year.

What do all these numbers mean?
SBUX's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the five+ consecutive quarters of an upward trend in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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Before we move onto other metrics, let's look at SBUX revenue (TTM) vs MCD and YUM in the chart below.

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Just look at the tail-end of the chart. SBUX (in orange) is actually expanding revenue, while MCD (green) and YUM (blue) are actually shrinking. Again, it's not that SBUX is in a growing industry and its just taking its piece. It's quite the contrary, really. SBUX is finding growth in an industry that is facing downward pressure on prices, revenue, and ultimately earnings.

Operating Revenues/Operating Expense 1.1881.181.16RISING

This ratio (which simply represents how much revenue is generated per one dollar of expense) must be at a minimum above 1.0 in order for a company to turn an operating profit. For the latest quarter SBUX showed a ratio of 1.19. More impressive, though, is the fact that SBUX is right near an all-time high as basically everyone else that's "mega-brand" is shrinking. One fascinating point to note, while MCD is getting beat up in stock price and in the headlines, the company turns an operating margin of 1.37, which, for context, is larger than that of Facebook. Hello? Ok, back to SBUX.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.18. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).

SBUX's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.

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Net Income (TTM US$ Millions) 2,5791531,514

There was that weird right down several quarters ago which make the year-to-year comparisons a little wonky for SBUX. Nonetheless, net income (after tax profit) over the trailing twelve months broke an all-time high of $2.6 billion. Net Income (TTM) is trending higher meaning that annual earnings have increased for at least five consecutive quarters. In fact, the last three quarters (TTM) in a row have broken all-time highs.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.

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Normally we look at free cash flow next, but I'm going to skip that to move onto what I believe is one of the most compelling parts of this story.

Capital Expenditures (TTM US$ Millions) 1,2641,1701,027RISING

Capital Expenditures (CapEx) (TTM US$ Millions) in the most recent quarter for SBUX was $1.3 billion, which is 8% higher than last year and 23% higher than two-years ago. CapEx is now at all-time highs and has been rising in general for five straight years. As a point of reference, MCD CapEx (TTM) has been falling for the last ten consecutive quarters from a peak of $3.1 billion to now $2.4 billion.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.

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SBUX stock is at all-time highs as are revenue, earnings, operating margins and CapEx. The fundamentals and technicals are beautifully strong. In most of the articles I post, there's a nice, neat theme that we can hold onto. A "reason" for a company's strength or weakness. With Starbucks we're left with a much less sexy but much broader based thesis: Starbucks is simply doing everything right. Period.