Starbucks (SBUX)

SBUX has performed well recently as the company started refocusing on customer experience, and is now trading at 29x times' P/E. In the 1Q - 2023, SBUX’s revenue grew 8% to $8.71B, slightly missing estimates of $8.78B and EPS was $0.75 slightly missing estimates of $0.77. The balance sheet is quite leveraged, with net debt of $20.6B. Total debt is around 5.0x times trailing twelve-month cash flow of $4.1B, and cash flow declined around 7% compared to $4.4B last year.

With the return of Mr. Schultz, the company has shown some promising operational improvement, especially in North America. Although, SBUX temporarily shut down on the share repurchasing and used that resource to improve and expand the store counts, we like this move and think it would benefit shareholders in the long term. It is trading at a premium valuation, we think the multiple could come down faster as China recovers (i.e. with faster earnings growth). 

Mr. Schultz initially mentioned that his current stretch would just be temporary during the time the company searches for a new CEO, he will remain as interim CEO through the first quarter of 2023. We don’t have any particular insight on the magnitude of how the stock will react to that news, although we don't think it would affect the company's fundamental much at that time. We would be comfortable owning this, but do think it needs a multi-year committment. But it is hard to fault it too much. 
Unlock Premium - Try 5i Free

At 30x earnings, has never been cheap. Lockdown in China hurts it, but as it enters a post-Covid world, numbers should be better. US same-store sales up 10%, product is habitual, loyal customers. Rationalized store base. Money spent on technology. Can't duplicate their products at home. Great brand that people love.

He likes it and feels that China's reopening will spell good things for Starbucks.

They're launching Oleato, an olive oil-infused coffee, in Italy and California (this spring). IT may bring more people in stores and could be a needle-movers in a few years. Could be a winner.

Bought it during last spring's bottom. A highly recognizable brand with 36,000 stores in 80 countries. $36 billion in revenues this year expected. Just affirmed guidance. Their US rewards program has 34.5 million members, up 15% in a year. Will buybacks shares and pay dividends totalling $20 billion. SBUX will get a boost from China reopening where they are aggressively opening, fueled by a growing middle class. Pays a 1.9% dividend, but it's more of a capital appreciation story. Average revenues per customer have stayed the same, not dropped.

Current share price very expensive.
Growth rate slowing as law of numbers takes hold.
Increased tension between China/USA will limit growth.
Wait until share price falls below $80 before buying.