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Starbucks
is scheduled to report their fiscal first quarter 2009 results
after the market closes on Wednesday, January 28. Based on our
analysis, we are expecting SBUX to report disappointing results
that fail to meet Wall Street’s expectations.
Analyst
Expectations
We are
forecasting revenues of $2.59 billion and EPS of $.15. This
would represent a 6% decline in revenues from last year’s $2.77
billion in the same period. The current analyst consensus calls
for revenues of $2.70 billion and $.17 EPS.
Starbuck’s
continues to be one of the big victims of the failing economy.
One of the first cuts people make to their budgets is the daily
latte. Personal finance pundits have harped on individuals for
years to give up those “$4 latte’s” and save that extra $1,200 a
year.
While
Starbuck’s has desperately to control costs, we believe that
declining store traffic combined with higher commodity costs
could continue to pressure margins. In addition, the competitive
environment continues to worsen. Now McDonald’s is introducing
their McCafe concept at stores nationwide. Those consumers that
still require their premium coffee drinks will still be able to
save money by choosing McCafe’s over Starbuck’s. Therefore, we
expect the company to continue to perform poorly until the
economy shows clear signs of recovery.
Share
Performance
Starbuck's
shares are down 4% since the beginning of the year. In 2008,
Starbuck’s lost over half of their market cap – falling 54%.
Valuation
Shares are
now trading at 10x consensus FY2010 EPS estimates. While this is
a slight discount to their peer group, we believe that Wall
Street will continue to reduce their 2009 and 2010 estimates for
SBUX. We don’t believe that Starbucks shares will perform very
well in this environment and do not recommend holding at this
time.
Recommendation:
Sell with a $8 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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