Thursday, December 26, 2013

Starbucks - 3 Reasons Why You Should Ignore Yesterday’s Drop

By Sarfaraz A. Khan and Gohar Yousuf

The shares of the world’s leading coffee shop chain, Starbucks (SBUX) dropped by as much as 3% yesterday to its lowest levels since mid-October following the ITG Investment Research’s report. The firm believes that the coffee maker’s momentum could be slowing down. Its same-store sales in the U.S. could increase by 5% to 6% in the first quarter of the next year, which is below market’s expectations of a 6.6% gain. However, this short term dip could be a buying opportunity for long term investors. The firm has a history of strong performance and has attractive long term growth prospects. The company has recently reaffirmed its guidance for 2014. The EPS is expected to be in the range of $2.55 to $2.65 while revenues could grow by 10% in 2014. Moreover, the profitability could also improve with an expected 150 to 200 basis points increase in the operating margins.

I believe that there are three main factors that will drive the company’s growth, as well as improve its profitability, through 2015: the favorable coffee pricing environment, the expected growth in some of its key markets and the increasing focus on tea and tea-related products.

1. Falling Coffee Prices

For companies like Starbucks, a drop ... read full article at GuruFocus