Starbucks Corporation (SBUX) celebrated its 50th anniversary since opening its first coffee bar in Pike Place Market last year.
The company has posted great year-over-year numbers and is executing its strategy to continue high single-digit growth for the foreseeable future. It also pays a nice dividend and plans to return three billion dollars to shareholders over the next three years through share buybacks and dividend payouts.
I also find this company’s philosophy outstanding. SBUX treats its line-level employees incredibly well. The company has offered its employees free college tuition through a revolutionary program with Arizona State University, and has committed to paying their baristas a minimum of $15 an hour.
They also offer an employee stock purchase plan and health benefits. These types of employee benefits are all but unheard of for food-service workers, and I believe these types of benefits continue to ensure that the customer-facing employees will go the extra mile.
With all that said, and as much as I love the company and their coffee, I do not see much growth in store for the share price, and there are more attractive dividend stocks than this one. I am bearish on this stock.
Recent Results and Dividend
SBUX stock has been trading between $95.92 (the 52-week low set on January 29, 2021) and $126.32 (the 52-week high set on July 27, 2021).
Starbucks brought in revenues of $27.29 billion over the last 12 months with a net income of $4.2 billion.
The company reported Q4 2021 earnings of $1 per share, beating analyst estimates of $0.99 per share. It has also reported $3.24 in earnings per share for 2021, beating analyst estimates of $2.85 for that period.
SBUX also pays a dividend of $0.49 per quarter. This represents just over an 8% increase over the past year and is also the 12th year in a row that SBUX has increased its dividend.
The company has a solid set of financial statements. Starbucks has a current ratio of 1.20, so it has enough current assets on hand to pay its bills for the next year at its current burn rate.
When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $139.30. One thing that surprised me when I was modeling the discounted cash flows and calculating the stock’s book value to derive the intrinsic value was that the book value is negative.
Wall Street’s Take
Starbucks earns a Moderate Buy consensus rating, based on 12 Buys and 10 Holds assigned over the past three months.
The average Starbucks price target of $124.85 suggests 20.2% upside potential.
Conclusion
I do not see any catalysts to drive the stock price higher, nor do I think the company will be able to raise the dividend enough to make it more attractive for income investors.
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