Starbucks Corporation Stock Downgraded (SBUX)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Starbucks Corporation (Nasdaq: SBUX) has been downgraded by TheStreet Ratings from buy to hold. 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.

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Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 0.8%. 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 59.18%, 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.

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. The company has a P/E ratio of 7969, above the S&P 500 P/E ratio of 17.7. Starbucks has a market cap of $60.05 billion and is part of the services sector and leisure industry. Shares are up 52% 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.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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