Starbucks Corp (SBUX)

This is a powerhouse brand with high loyalty among customers. The balance sheet is solid. The high-growth rate projections are plausible because of the opportunity in China. Howard Schultz is a world-class business leader. Right now, I am cautiously optimistic about new CEO Jim Donald, but that would be the area of ambiguity. I believe very, very much in founder-led companies, as they more often have ownership cultures (i.e. they may move slow at times, but when they do, they move with complete alignment to common-stock shareholders).

I think Starbucks could actually go lower from here (around $29.60). My "ideal" price is around $26. But life is not ideal, nor need one be ideal to succeed at investing and CAPS. And so, 'tis time here. SBUX, consider yourself CAP'd.

Starbucks is a powerful brand, one of the most powerful around the globe. I spend about six months of the year overseas in India, SE Asia and Europe for my job; everyone knows Starbucks even if it isn't in their country yet. When I visit a store in Hamburg, Geneva, Moscow or Paris it is packed. The brand has a lot of goodwill and they create an experience not just a product. With Shultz coming back it is only going to improve and continue. Great company, great brand, great product!! Over saturated; you must be kidding. People said that about McDonald's when it had 5000 stores, I don't know how many McD's has now but I believe it is something like 20,000. Starbucks hasn't even started to tap markets like India and they have very little presence in China,Brazil and Russia. As these economies grow Starbucks will win.

Telling times...

They're closing 600 stores and they're laying off over 1,000 employees. For a company with a poor current ratio this is just a start. They need more changes to improve their shrinking operating margins and pay off the $1.25 billion dollars in revolving debt that is becoming more expensive. Today, the second most actively traded options were SBUX 16 OCT08 Puts. This was second only to the QQQQ 54 DEC08 Calls.

Who is buying all of these in the money puts unless they think the price is going lower?

Now, once again I come again to tell you that my price target for SBUX is $13, but it may likely go lower. Although I believe Starbucks is a long-term sell I wouldn't recommend buying above that price. I've written several pitches against Starbucks and I've blogged about it. I've cited the same reasons as many others have (soaring energy and input costs, deteriorating consumer and weakening economy) but one thing I haven't mentioned enough before are the fact there are many coffee drinkers who are anti-Starbucks -- including myself -- which are growing closer to their supporters in this environment.

Do you really think their competitors aren't innovative enough to take away market share. Years ago a lot of people thought that Dunkin Donuts was a great long-term buy. I see many similarities today, and this is why I don't invest in mutual funds because I'd fire anyone buying these shares with my money.

Some coffee fans get grim delight in Starbucks woes
http://www.reuters.com/article/rbssRestaurants/idUSN0437926720080707

Starbucks rivals seen slurping up its sales
Link - http://www.reuters.com/article/ousiv/idUSN2535655820080727

As former Barista and current Shareholder, I am grateful for the return of Schultz. He saw his company slipping, and made the right move in coming to its rescue. So far, it seems he is making all the right moves in correcting issues--closing underperforming stores, slowing domestic growth to stop the cannibalization of store sales, focusing on international expansion, and re-focusing on the customer experience.

His move today is particularly brilliant. What better way to show your dedication and commitment to your customers--and desire for perfection in every cup of coffee--than requiring every single barista to spend 3 hours being re-trained? I learned from a current Barista that if you don't attend today's training, you can't work on the espresso bar.

This is a bold move...and the right one. Schultz has the right long-term perspective and knows what needs to happen in Starbucks. As long as he sticks around, I'm going to keep my stock and keep this at an outperform.

With success of drive throughs and getting into rural markets, this stock is poised for success.

P/E of 50? Oh, that's very nice. For the price of one share of this stock or two latte's, you can buy a nicely sized can of Folger's. As a bonus, unlike NYSE stocks and Starbucks coffees, cans of Folger's can be purchased with food stamps.

Then again, we all need that extra boost for a hard day of house flipping and making HELOC loans. The bell hasn't even begun to toll for this overextended company.

I took the Bull side in a recent Dueling Fools feature, and my Bull arguments highlight many of the reasons I'm long SBUX: http://www.fool.com/news/commentary/2006/commentary06092817.htm?ref=foolwatch

Also, last quarter lots of investors were down on Starbucks but I thought that was an overreaction at the time: http://www.fool.com/news/mft/2006/mft06080327.htm

There's lots of growth left for this well-run company with loyal customers who are addicted to its awesome coffee. Howard Schultz is a great corporate leader too.

With what has happened, 2008 will be better and should result in a better year for the stock price. Expect a turn around but it may not be big.

Starbucks, who was once a growth darling of the 90s, has reached that "cash cow" stage of life, but only problem is the cash has not been all that spectacular as of late. The real reason for this pick is two fold: 1.) I believe management and new CEO will improve operations store by store 2.) Starbucks has been working on and now has an instant coffee version of the real deal which could mean a major slice of a multi-billion dollar business.. Could this cash cow go darling again on us?

People will no longer be able to pay such high prices for specialty coffee. And competition like McDonalds will move in.

Every time I go to a Starbucks, I count the number of people there. It doesn't take long before I run out of fingers and toes. How much better does it get when you're considered the industry standard?

I do about $150/month in quad mochas. It's ridiculous but I can't stop. Anyway, has anyone noticed that if you multiply the dow dollar loss or gain by 2.5x, that's the SBUX loss or gain? This coupled with the high PE ratio suggests that this stock is seriously over-valued. With that said, I do about $150/month in quad mochas.

They have expanded too quickly, in the process losing quality control, resulting in a serious dilution of their product "cachet". When you can get a discounted latte at Dunkin Donuts, why pay Starbucks prices when you no longer get good service and a pleasant environment?

Over expansion combine with high cost of sourcing coffee and add to that the price of milk going up over 50% in the past 2 years will squeeze margins. Same store sales will also suffer as inflation and economy will take its toll on discretionary purchases. Shultz is just in the begining phases of shutting under performing stores. This will help with cost control, but at the same time will reduce revenue. Back in '03 the stock was trading around $11/share, so this stock still has room to move down. 3rd qtr results will come in lower and look for SBUX to issue guidance for year end #'s to be less than previous #'s. SBUX can count on international store growth and revenue to partially offest losses domestically but the 30% year over year growth is over. It will take at least a year if not 2 for SBUX to see growth return, this is all contingent on inflation getting in check, and the economy picking up again.

WIth economic inflation, and rising food costs, $5 coffees just aren't going to be a priority with many people. People will be looking for ways to cut costs and this will be one of the first ways I think.

I have to admit, when the first Starbucks opened in the college town where I grew up, I hated it. I feared for the future of the local coffehouses and rued corporate homogenization. Quite a few years down the line, and my town has proven that where there are college kids, there is a bottomless need for coffee, as both Starbucks and the better of the local cafes are still standing. And I've come around to the ubiquitous green logo -- not only do they make a fine cup of hot chocolate, this is a socially aware company that has several programs to build community and sustain coffee communities.

This company carries a low to no debt ratio. As it expands into foreign markets it will offset any slowdown in our national economy. Plus unlike most other coffee shops this company carries name recognition that is highly valuable in the food and beverage industry.

I think this will be the single most ubiquitous company on the planet in 20 years. They are funding that growth with profit, not debt. Reasonably priced competitors will be gobbled up and pose less of a threat than BK did to McD's, Pepsi to Coke, etc. I will continue buying on dips for next 10 years, then once the growth slows, my grandkids will go to college off the dividends.

SBUX is currently trading at 42.7 times 2007 earnings expectations. The company is growing EPS at 22% per year. This number will only get smaller as Starbucks continually gets closer to saturation of their market. The company would have to continue growing EPS at 22% a year until mid 2011 before trailing EPS gets down to 20 assuming stock price remains unchanged. What is most likely to happen is growth will slowly dip into the high teens and this stock will slide down in price until growth rate more matches it's valuation. I think within a couple years this stock will fall to around $25 a share not due to bad company fundamentals but due to current over-valuation.