Will Starbucks (SBUX) Stock Be Affected By China Meat Scandal?

NEW YORK (TheStreet) -- Starbucks Corp. (SBUX) is the latest in a list of quick service restaurants to announce it used meat from the Shanghai Husi plant, which Chinese authorities shut down pending an investigation.

The meat plant, a local supplier, was closed after it was alleged workers were seen using meat that had fallen to the floor, and mixing expired meat with fresh, USA Today reports.

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Several other fast food brands including Burger King (BKW). McDonald's (MCD), and KFC, which is owned by the Yum! Brands  (YUM), said they used meat products from the supplier.

Shares of Starbucks are up 1.52% to $78.79 in early afternoon trading today.

Separately, TheStreet Ratings team rates STARBUCKS CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate STARBUCKS CORP (SBUX) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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

  • The revenue growth came in higher than the industry average of 8.4%. Since the same quarter one year prior, revenues slightly increased by 9.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 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 9.4% when compared to the same quarter one year prior, going from $390.30 million to $426.90 million.
  • Net operating cash flow has increased to $418.40 million or 37.09% when compared to the same quarter last year. In addition, STARBUCKS CORP has also vastly surpassed the industry average cash flow growth rate of -21.57%.
  • 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.
  • STARBUCKS CORP has improved earnings per share by 9.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STARBUCKS CORP swung to a loss, reporting -$0.01 versus $1.79 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus -$0.01).
  • You can view the full analysis from the report here: SBUX Ratings Report
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