Starbucks (SBUX, Financial), which is currently trading at $77.7 and offering a dividend yield of 1.6%, is an attractive stock to consider for the medium to long term. This article discusses the company’s latest results and the reasons to be bullish on Starbucks.
On the results front, Starbucks reported an increase of 10% in 4Q14 revenue to $4.2 billion as compared to $3.8 billion in 4Q13. The company’s revenue growth was driven by 5% growth in global comparable store sales and incremental revenues from 1,599 net new store openings over the past 12 months.
For the full year 2014, Starbucks reported revenue of $16.4 billion, representing an increase of 11% as compared to 2013 revenue of $14.9 billion. The company’s EPS growth was also robust with FY14 EPS of $2.71 as compared to an EPS of $0.01 for FY13. Therefore, Starbucks' results were reflective of a strong growth trend coupled with improvement in margins.
Comparable store sales, which is a critical growth indicator, were positive for Starbucks in the Americas, EMEA and China/Asia Pacific. This is one big positive and another positive point in the results was that Starbucks was able to increase its revenue through raising prices. If this trend sustains, the company can witness healthy same-store sales growth even in the foreseeable future.
I am also encouraged by the robust revenue growth trend in China and Asia Pacific. For the fourth quarter of 2014, revenue from the region increased by 21% to $310 million as compared to $256 million in 4Q13. I believe that strong revenue growth will continue in the region and the region can be a significant growth driver for the company in the future.
While the stock might have discounted the results to a large extent, the stock still needs to discount the positive factors that are due in 2015. For the coming year, Starbucks expects revenue growth to be in the region of 16% to 18%. This would include the planned acquisition of Starbucks Japan. However, the key point is that the strong growth trend will continue for the company.
Further, Starbucks is also targeting comparable store sales growth at mid-single digit, which is largely the same as FY14. I believe that this growth will again come through a mix of price increases and increase in volume of sales.
Due to these positive factors, Starbucks expects that the EPS for FY15 will be in the range of $3.42 to $3.54 on a GAAP basis. The mid-range of the EPS guidance would mean that Starbucks is likely to clock EPS growth of 28% in FY15. This is robust and should take the stock meaningfully higher from current levels.
Starbucks has also planned new initiatives that will help the company boost consumer engagement and sales. The company will start Mobile Order and Pay in stores within the Portland, Oregon area in December 2014. This service will enable customers to place orders in advance of their visit and pick them up at their selected Starbucks location.
From a shareholder value creation point of view, Starbucks repurchased common stock outstanding (10.5 million) in the current financial year and the company still has an authorized 16 million shares available for repurchase.
Further, the board declared a dividend of $0.32 per share for the quarter, representing an increase of 23%. Therefore value creation will come through share repurchase, higher dividends and potentially higher share price in 2015.
My view is that investors can consider buying Starbucks at current levels as 2015 promises to be better than 2014. Further, new initiatives can potentially boost the company’s same store growth and have a positive impact on key margins. Starbucks is a stock to buy and hold with a long-term perspective. The stock has created and will continue to create meaningful shareholder value.
