Qualcomm stock is up 13.2% this year, and 42.2% during the past 12 months. Market capitalization has...
Starbucks: Perk Up Your Portfolio
03/17/2014 8:00 am EST
This featured recommendation—a leading player among coffee chains—has a great business model that is executed flawlessly; indeed, it is one of our favorite companies in the world, says Briton Ryle in The Wealth Advisory.
Starbucks (SBUX) has 20,184 locations in 60 countries. Starbucks buys more than half a billion pounds of “green” (unroasted) beans from more than 300,000 growers a year. That’s about 3% of the world’s supply.
Starbucks reported $0.71 per share for Q4 earnings versus expectations of $0.69. Revenues came in at $4.2 billion. Net income for 2013 hit $530.7 million, up from $432.4 million in 2012.
In fiscal 2013, Starbucks repurchased approximately 10.8 million shares of its common stock for roughly $588.1 million.
Add in dividend payments totaling $628.9 million, and this means Starbucks returned over $1.2 billion to its shareholders in 2013. Starbucks’ payout ratio is below 50% of earnings, so there is room for growth.
One of the keys to Starbucks' success is its gift cards. In Q4 (which is Starbucks fiscal first quarter), its customers added $1.4 billion to gift cards. For fiscal 2013 (which ended September 29), people loaded $3.7 billion onto Starbucks cards, up 27.5% from a year earlier.
At this rate, card loads will easily eclipse $4 billion in fiscal 2014. That’s roughly equivalent to one quarter’s worth of revenue. Starbucks can’t recognize gift card cash as revenue until it is actually spent at a store. But it can invest it.
Starbucks money managers buy high-grade corporate bonds, Treasury notes, and certificates of deposit that mature in three to 12 months. In the past four quarters, Starbucks has made $146 million on interest alone, or 8% of total profit.
Bloomberg reports that Starbucks generates more free cash relative to its debt than any US restaurant chain. What’s more, of the 11 consumer-discretionary companies in the S&P 500 (SPX) with market values bigger than $50 billion, Starbucks has the least debt.
Starbucks expects to grow earnings 13% in 2014. If we simply add that to the current valuation, we can get a price target of $84.50. Starbucks will likely beat that 13% growth rate (it grew net profits 22% last year).
We added Starbucks to The Wealth Advisory portfolio in October 2012 at $45.59. We have maintained a “hold” rating on the stock for months. It’s time to get Starbucks back in the “buy” column.
More from MoneyShow.com:
Related Articles on STOCKS
Of course, there are arguments as to why China should or should not bow to U.S. demands, and the inv...
Headquartered in New Jersey and founded in 1891, Merck & Co. (MRK) is a global health care compa...
Founded in 1902, Minnesota Mining and Manufacturing (MMM) started as five businessmen set out to min...