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TheStreet Open House

High Hopes For Starbucks (SBUX) Earnings Push Rival Stocks Lower

NEW YORK (TheStreet) -- Ahead of Starbucks (SBUX) earnings slated for release after the bell, investors are preemptively exiting rival stocks SodaStream (SODA), Green Mountain Coffee Roasters (GMCR) and Krispy Kreme (KKD).

By late morning, SodaStream had unloaded 2.8% to $37.80, Green Mountain was 1.6% lower to $79.87, and Krispy Kreme tripped 1.4% to $18.56.

The coffee chain giant will report first quarter results for the period ended December 2013 at 4 p.m. EST on Thursday.

Analysts surveyed by Thomson Reuters expect net income of 69 cents a share, 12 cents higher than the year-ago quarter. Analysts forecast revenue of $4.29 billion, a 13% year-over-year increase.

The Seattle-based business previously issued same-store sales growth guidance in the "mid-single-digit" range. Estimates provider Consensus Metrix anticipates global growth of 5.9% comprised of a 6.4% increase in the U.S. and 7.7% in gains in China and the Asia-Pacific.

Starbucks is also trending lower ahead of earnings. Shares have taken off 1.3% to $72.63.

TheStreet Ratings team rates STARBUCKS CORP as a Hold with a ratings score of C+. The team has this to say about their recommendation:

"We rate STARBUCKS CORP (SBUX) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 0.5%. Since the same quarter one year prior, revenues rose by 12.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, SBUX's share price has jumped by 38.52%, exceeding the performance of the broader market during that same time frame. Although SBUX had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • SBUX's debt-to-equity ratio is very low at 0.29 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.71 is somewhat weak and could be cause for future problems.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 443.2% when compared to the same quarter one year ago, falling from $359.00 million to -$1,232.00 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, STARBUCKS CORP's return on equity significantly trails that of both the industry average and the S&P 500.

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