Starbucks Corp.

+0.85 (+0.84%)
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Why Starbucks Could Rip Higher



Starbucks (SBUX) has earnings due out July 23rd, after the market closes. The stock is trading at an all-time high and for good reason. It is the undisputed king of its industry and is one of the top rated fundamental companies in the world. in fact, there are only seven mega companies in all of North America with market caps above $50 billion that have a five star fundamental rating and have bullish momentum. Starbucks (SBUX) is one of them, coming in at number five. Here's the star scan image.

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The company has been called a "marvel" by some as it grows in an industry that's facing more and more competition. SBUX has "side-stepped" the "bad" big-brand issues by raising wages and continuing to be at the forefront of some pretty cool payment technologies. The company also has a killer social media strategy, which focuses on community rather than spamming. "MyStarbucksIdea" is an online community based on crowdsourcing where customers and employees can make suggestions and ideas for new products, improve products and services, and enhance the Starbucks experience. The company has been remarkable in this regard.

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 a company understanding its customer base and making them feel taken care of. That’s very "un-big-brand" like in the food industry.

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 (CapEx) are at all-time highs, while competitors like McDonald’s (MCD) are cutting CapEx as quickly as possible. The firm really is a "marvel" and one of what I call "the magnificent seven."

The average estimate for next quarter's revenue of $4.9 billion is above last quarter's $4.6 billion.

Technicals   |   Support: 53.39   |   Resistance: Stock is Through Resistance   

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 (top rated) technical rating because it's trading above its 10-, 50-and 200- day moving averages and the stock is up on the day.

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 $4.9 billion M $4.9 billion M $4.6 billion M Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

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 +15.8% over the last three months and up +38.7% over the last six months. The stock price is up +42.0% over the last year. The stock continues to smash through technical resistance and is staring at an all-time high right now (and what feels like everyday).

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

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

Revenue (TTM) has increased for at least five consecutive quarters which triggers a "trend" (in this case it's 20 consecutive quarters). Revenue over the trailing twelve months (TTM) for SBUX is up 13.2% and up 26.3% over two-years. The company is expanding through new stores, growing same store sales and through its Teavanna brand.

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

Net Income (after tax profit) over the trailing twelve months (TTM) for SBUX is up to an all-time high of nearly $2.6 billion. Further, earnings (ttm0 have been up five consecutive quarters which again triggers our "trend" for the star rating. The last three consecutive trailing-twelve-month numbers have each broken all-time highs in earnings.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars.

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

Capital Expenditures (CapEx) (TTM US$ Millions) is $1.26 billion, well into an all-time high. CapEx is up 8% year-over-year and 23% from two-years ago. The CapEx phenomenon, as it were, has two massive impacts on the firm. First, let us note that SBUX sees growth possibilities ahead -- the increased CapEx is the circumstantial evidence of this phenomenon as it spends more to grow more. Second, even as CapEx is breaking all-time highs, the company is breaking all-time highs in earnings (net income). Often times increased capital expenditures come at the expense of earnings in the near-term for the promise of earnings in the future. In this case, SBUX is realizing both all-time highs in earnings today and the hope of continued earnings growth in the future.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars. Note the rising bars from one-year ago.

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The bullish thesis for Starbucks is so easy it just slips of your tongue. It reads something like this:

The company is breaking new all-time highs in revenue and earnings as capital expenditures all hit all-time highs with the goal of turning those expenses into future free cash flow. It has the best special media program of any company in its industry, and possibly of any company in any industry. It's one of only seven companies in North America with a market cap above $50 billion that has the highest five star rating and bullish momentum.

It has side-stepped the "bad parts" of big brand while reaping all of the benefits of big brand. It understands its customers as well as any other company in the world, serves their desires while maintaining a wonderful social presence. As I write in an article on June 22nd; "Starbucks is simply doing everything right. Period."