This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Starbucks' Growth Offers Better Brew Than Dividend

Stocks in this article: SBUXMCDYUMDNKN

Where does CEO Schultz see the company's growth? He spent the company's fourth quarter earning call talking about packaged products and profit margins, which likely pleased analysts.

Schultz also spent a significant portion of the call talking about Evolution Fresh and La Boulange, two acquisitions that initially raised investor eyebrows. In 2013, both acquisitions will, "expand our retail store and channel development presence," said Schultz on the call, as Starbucks rolls out new stores.

Earlier in 2012, TheStreet noted that Schultz's plan with both bolt-on acquisitions will require a far higher amount of spending than either company's price-tag, in an M&A strategy that resembles IBM in its style and planning.

Like IBM (IBM), we argued Schultz is of the belief he's found a way to grow Starbucks in a way that increases the already high penetration and margins of the company. It's an M&A strategy that hinges on using revenue synergies so $1 in acquisition spending doesn't just mean $1 in new revenue or profit.

Because Evolution Fresh and La Boulange will create non-Starbucks branded store growth for the company and their products will have an increasing presence in the company's existing store base, the company may see a greater bang for the buck compared to what it might spend to only open new branded stores.

As 2012 draws to a close with Starbucks shares gaining on a multi-year stock run that's led to what are likely four consecutive years of stock gains, analysts are pinning a fifth year of gains on Schultz's M&A and growth execution.

In raising Starbucks price target to $60 from $59 - a near 20% premium to current share prices at $51.46 - Bank of America Merrill Lynch analyst Joseph Buckley highlights the company's new ventures over its dividend or recently reported results.

"Starbucks described its new product pipeline as the most robust ever. Plans for identifiable new products such as Refreshers, Verismo, Evolution Fresh juice, and La Boulange bakery products are taking form and offer more growth potential," wrote Buckley, in a Thursday note to clients. The analyst also highlights strong sales growth, its marketing presence - especially on social media - and the company's 24% dividend hike to 21 cents a share as stabilizers.

After fourth quarter earnings close the books on a strong year for Starbucks, the company's store, earnings and product growth efforts may emerge as the biggest story for investors to follow in 2013. A surprisingly large dividend hike and stronger-than-expected operating results should now be seen as more of a safety net for investors.

Here's another take on Starbucks in a peak coffee era.

For more on other restaurant stocks reporting in November, see why McDonalds is no longer overcooked.

Also see why Chipotle Mexican Grill may be on a market value meal for other restaurants-based stock ideas.

-- Written by Antoine Gara in New York

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs