Starbucks Cools Down but It's Still Hot

NEW YORK (TheStreet) -- Hope deferred makes the heart sick. That's why it often doesn't pay to overestimate the earnings results of great companies like Starbucks (SBUX). It's hard for even this iconic brand to have a perfect quarter.

That said, the company's latest earnings were still pretty darn good. I was hoping for slightly worse revenue and earnings-per-share numbers from SBUX. Why, you might ask? Because I wanted the stock to go on sale.

SBUX closed Thursday down slightly at $73.39 but rose in after-hours trading. Based on that reaction I'll have to keep waiting for a much lower entry price. Meanwhile, some analysts have given the stock a one-year price target of close to $90 a share.

Starbucks reported that its fiscal first-quarter revenue improved by 12% to an all-time record of $4.2 billion for a single quarter. Yet, lo and behold, it wasn't quite good enough to match the nearly $4.3 billion that analysts had been expecting.

My colleague Keris Alison Lahiff served up a nice synopsis of SBUX's quarter in a recent article on the company's first quarter. The good news is the company exceeded analysts' EPS projections by 2 cents to 71 cents per share, a nearly a 25% improvement over the EPS from the year-ago quarter.

No one was heartsick over that improvement, and CEO Howard Schultz told those listening to the earnings conference that "Holiday 2013 was the first in which many traditional brick and mortar retailers experienced in-store foot traffic give way to online shopping in a major way."

The company's combination of physical and digital assets, he continued, "positions us as one of the very few consumer brands with a national and global footprint to benefit from the seismic shift underway."

Now is a good time to see where the share price of SBUX has traveled over the past five years and present a chart that highlights some of the drivers one might expect would be most responsible for the stock's stellar performance.

SBUX ChartSBUX data by YCharts

As the Wizard of Oz might say, "Ignore those other pesty lines and just focus on the blue price line." The previous quarterly numbers were affected by a lot of one-time situations and charges that tamped down the EPS and income from continuing operations. That's why the PE ratio for SBUX in the previous quarter was something akin to 7,300.

For the most recent quarter the company has emerged from its previous funk and knocked the lights out in some very important financial categories, especially consolidated operating income up 29% to $814 million and the all-important EPS.

In addition, consolidated net revenue increased 12% to $4.2 billion and global comparable-store sales grew 5%, driven by a 4% increase in traffic. The company opened 417 net new stories globally, bringing total stores to 20,184.Net revenue for the Americas segment was $3.1 billion in the first quarter of fiscal 2014, an increase of 8% over the year-ago period.

"Starbucks strong [first-quarter] results once again demonstrate the fundamental strength of the Starbucks business, particularly noteworthy given the continued economic challenges worldwide," said Troy Alstead, CFO and group president. He reaffirmed the company's growth targets for fiscal 2014.

Well, perhaps I should consider buying some shares after all. I'll do what Jim Cramer calls "scaling in" incrementally. This way, if there is a hoped-for share price correction, I'll have some cash to buy more shares at the reduced price. Then I'll go to Starbucks and celebrate.

At the time of publication the author had no positions in the companies mentioned in this article.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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