The global coffee chain operator, Starbucks (NASDAQ :), turned out to be a great gamble during the pandemic. Its stocks have not only recovered from last year's losses, but they also outperformed other global food chains.
This remarkable turnaround comes after a severe blow to his business as COVID-19 spread worldwide, forcing offices to close and daily customers to stay at home. In most cases, global in-store sales, a key measure of restaurant success, fell 5%, more than analysts expected.
Despite this spotty sales recovery and a still-raging pandemic in many parts of the world, a strong rebound in Starbucks stock suggests investors think the worst is over for the Seattle-based company.
In the past six months, SBUX is up 24%, almost double the profit it has delivered. The stock closed at $ 111.02 on Monday, more than 70% more than its dip in March 2020.
As stocks are hovering around a record high, it is reasonable to ask whether this stock is still a buy. Could it be that much of the good news is already priced?
Starbucks Weekly Chart.
Many analysts believe that Starbucks is back on its growth path after a tumultuous year as the reopening of its two largest markets, the US and China, will reduce sales and expand profit margins. These markets make up 61% of the company's global portfolio, with 15,340 and 4,863 stores respectively.
Strong Growth Returns
Sales are expected to grow 21% this year to a record $ 28.5 billion. Analysts are also seeing a 142% earnings rebound to $ 2.83 per share. In 2022, they predict another 22% profit growth. If the reopening of the global economy remains on track, these projections may even turn out to be conservative.
According to a recent note from analysts at BMO, Starbucks has the potential to exceed current market expectations as the global economic reopening accelerates. The note read:
“We view SBUX as a beneficiary of reopening with significant potential upside from consensus in FY21 / FY22, driven in part by financial contributions from the sale transfer as a result of the transformation of US assets, accelerating digital momentum , easing the competitive dynamics in China and a faster recovery of margins. "
Another reason that could fuel more profits at Starbucks is the company's aggressive drive to restructure its business. The pandemic has forced it to rethink its central concept as a "third place" away from work and home where customers can relax. It now plans to accelerate the rollout of its & # 39; pick-up & # 39; store concept, with smaller locations with no customer seating. In the US, Starbucks is closing about 800 underperforming locations and building new retail formats, such as city cafes with no seats and more suburban lanes.
Over the long term, the chain plans to build more than 20,000 additional sites over the next decade to achieve its goal of reaching 55,000 sites by fiscal year 2030, up from nearly 33,000 today.
"We are well positioned to invest in the right areas to strengthen our competitive advantage and drive consistent, sustainable growth for decades to come," CEO Kevin Johnson told investors in December.
Bottom Line
Starbucks may no longer have short-term upside potential after a power outage in the past 12 months, but we believe the stock is a good buy-the-dip trade due to its long-term growth potential.
The company, with an annual dividend yield of 1.63%, pays $ 0.45 per share each quarter, making it a suitable candidate for investors seeking income. Payout has increased by approximately 18% per year for the past three years, underscoring management's strong focus on returning capital to stakeholders.
