Boy do people love coffee! Perhaps even more than they like the controversy surrounding Starbucks’ (SBUX) plain red holiday cups…
Whatever your fancy, one thing is clear: shares of Starbucks are not cheap. Our latest fair value estimate pegs intrinsic value of the coffee giant in the high-$40s, and we think this darling may be shaping up for a larger-than-normal “correction” in the event materially adverse weakness strikes the market. Shares hit as high as $63+ at the end of October, and the company’s fiscal first-quarter results, released January 21, may spark the “kind of” profit-taking that drives eventual price-to-fair value convergence in the coming months.
To be completely fair, Starbucks’ holiday performance wasn’t bad. It achieved 9% comparable store sales growth in the US and Americas, 8% globally, and it noted that global traffic was up 4%. Consolidated net revenue jumped 12%, to a record $5.4 billion, and it leveraged that nice pace of growth into a 16% increase in consolidated operating income, to a record $1.1 billion. Non-GAAP earnings per share in the period also set a record, hitting $0.46.
Annualizing that record quarterly performance, however, gets to a non-GAAP forecast of $1.84 per share, meaning with shares trading just shy of $60 at present, conservative estimates put it at just over 30+ times forward earnings. Management itself is targeting non-GAAP earnings per share guidance for fiscal 2016 in the range of $1.87-$1.89 per share, not making the multiple much better.
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