Why Investors Love Starbucks: Howard Schultz

NEW YORK (TheStreet) - It hasn't even been a year yet since I added Starbucks (SBUX) to the list of names I cover. Yet, every time I hear CEO Howard Schultz's public comments, I like many in the stock market, start to swoon.

This guy has a way of soothing fears that goes a long way when investors consider a stock.

Starbucks' shares, despite a less-than-perfect earnings report on Thursday, were rising 3.1% to $75.63 at last check.

Brian Sozzi, CEO and chief equity strategist of Belus Capital Advisors said Friday's share price move is "a result of the Howard Schultz's charm."

"He does a strong job of focusing on the positive and making sure the Street buys into the positive," Sozzi wrote in an email. "The key positive today: quotes on the dollars loaded on Starbucks card and the image conveyed of it all being unleashed on Starbucks stores in second quarter, driving a monster quarter and full-year guidance raise." Sozzi rates the company at "hold."

Late Thursday, Starbucks' first-quarter earnings of 71 cents a share beat consensus by 2 cents. Revenue rose 12% to $4.24 billion, however Wall Street was expecting more, looking for $4.29 billion.

Same-store sales in the U.S. also missed consensus expectations for the December-ending quarter, coming in at 5%, versus expectations of 6.4%. It was clear that even darling Starbucks felt some of the same troubles that many retailers felt during the holiday season.

"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," Schultz said. "As our solid traffic growth and record Q1 results demonstrate, Starbucks unique combination of physical and digital assets positions us as one of the very few consumer brands with a national and global footprint to benefit from the seismic shift underway."

Starbucks continued to play up its embracing of the digital consumer through its mobile technology and growing loyalty card base. Starbucks said dollars loaded on Starbucks Cards globally reached $1.4 billion in the quarter.

Starbucks also upped its earnings forecast for the fiscal 2014 year to a range of $2.59 to $2.67 from $2.55 to $2.65, previously.

In Sozzi's latest commentary for TheStreet, as much as the market may love Schultz, it's important to check your biases at the door when making an investment.

He points specifically to the slowing transaction growth in the company's Americas segment, that may have "surfaced because of the 'seismic' shift in how people consumed goods ... or from store operating issues born from an expanding menu (denied by the company)," is a development that "is not factored into the valuation on a publicly traded Starbucks," Sozzi wrote in an article on TheStreet on Friday.

He also was surprised that Starbucks had to resort to in-store promotions to get customers in the door last month.

Despite concerning trends, Wall Street still loves this stock.

Marc Courtenay, a contributor to TheStreet and owner of Advanced Investor Technologies, as well as the publisher and editor of www.ChecktheMarkets.com, says Starbucks is now "a comeback story."

"Investors do have great confidence in Howard, and based on his comments yesterday they could tell that Howard is keenly aware that the company has to grow its online, digital business as well as opening new bricks-and-mortar stores," Courtenay writes in an email.

Investors gave the company and the stock a "vote of confidence" for 2014, because the company still has a lot of untapped opportunity internationally.

Credit Suisse analyst Karen Holthouse said Starbucks "still represents the most attractive multinational investment opportunity in restaurants."

Holthouse says that from a valuation standpoint, Starbucks is "more compelling than investors realize," according to a note on Friday. Credit Suisse rates Starbucks shares "outperform."

The company is also "benefitting from an outperforming high-end consumer, while [McDonald's (MCD)] is over-indexed to a still very-stressed low end consumer," the note said.

Starbucks is also "in a unique position to benefit from growing preferences for higher quality foods, as it has made (and continues to make) significant investments in convenience, while also expanding the variety of fast-casual quality products it can offer with QSR-style convenience," Holthouse writes. "MCD sits squarely on the other side of this change in behavior."

Even though I don't even drink coffee, my trips to Starbucks are not that often. I still visit them for a number of reasons: the tea and the lemon loaf, but that's not at all. Besides delicious baked goods, one of the main reasons I visit them, is for their convenience. Starbucks' are virtually everywhere, whereas Dunkin' Donuts (DNKN) is not, at least in my experience.

And now with the company focusing more on Teavana, I'm sure Starbucks will get more of my dollars.

--Written by Laurie Kulikowski in New York.

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

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