Starbucks Corporation Stock Buy Recommendation Reiterated (SBUX)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Starbucks Corporation (Nasdaq: SBUX) has been reiterated by TheStreet Ratings as a buy with a ratings score of A+ . The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins.

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Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 6.7%. Since the same quarter one year prior, revenues rose by 10.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • STARBUCKS CORP has improved earnings per share by 14.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, STARBUCKS CORP increased its bottom line by earning $1.79 versus $1.62 in the prior year. This year, the market expects an improvement in earnings ($2.15 versus $1.79).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 13.1% when compared to the same quarter one year prior, going from $382.10 million to $432.20 million.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • The gross profit margin for STARBUCKS CORP is currently lower than what is desirable, coming in at 25.20%. Regardless of SBUX's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.37% trails the industry average.

Starbucks Corporation operates as a roaster, marketer, and retailer of specialty coffee worldwide. As of September 30, 2012, the company operated 9,405 company-operated stores and 8,661 licensed stores. Starbucks has a market cap of $40.58 billion and is part of the services sector and leisure industry. The company has a P/E ratio of 29.3, above the S&P 500 P/E ratio of 17.7. Shares are up 1.5% year to date as of the close of trading on Friday.

You can view the full Starbucks Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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