Foolish Forecast: Twinkle, Twinkle, Little Starbucks

All eyes will be on the Pacific Northwest Thursday night, as coffee giant Starbucks (Nasdaq: SBUX) reports fourth-quarter and full-year 2007 earnings after the closing bell. Have a sip of last quarter's results, then come back for a fresh refill of market data. I'll take mine with four extra shots of espresso, hold the cream.

What Fools say:
Here's how Starbucks' CAPS score rates against some of its peers and competitors:

	Market Cap (millions)	Trailing P/E Ratio	CAPS Rating
Starbucks	$17,904	28.4	***
Green Mountain Coffee Roasters (Nasdaq: GMCR)	$745	71.7	***
Peet's Coffee & Tea (Nasdaq: PEET)	$410	56.7	***
Krispy Kreme Doughnuts (NYSE: KKD)	$192	N/A	*
Caribou Coffee Company (Nasdaq: CBOU)	$101	N/A	*

Data taken from Motley Fool CAPS on Nov. 14.

Coffee peddlers seem to get at best a lukewarm CAPS welcome these days. But at least one elite all-star player likes the stock: "Finally! One of the greatest growth stories of the past 20 years has reached a more reasonable valuation -- everyone needs their coffee, it's second only to water (which you need to make coffee)."

On the bearish side, our players think the cafe market is becoming oversaturated, and one user says, "If you have tried the coffee of McDonald's (NYSE: MCD) you'll understand why [Starbucks] will only go lower!"

What management says:
Last quarter, management was shuffled around a bit. Martin Coles, who had been the president of Starbucks International, became COO. He now reports to CEO Jim Donald. Other talent has risen to his previous post as president of international operations, and Launi Skinner is now president of the domestic division. The new COO used to be CEO of shoe giant Reebok's brand management arm until Reebok was acquired by rival Adidas two years ago, so there's serious retail management expertise at work here.

What management does:
Is the caffeine buzz wearing off? Everything seems to be s-l-o-w-w-w-i-n-g d-o-w-w-n in Seattle, from the top-line growth to the bottom-line margins. The cash flow squeeze looks downright alarming, until you realize that it's a result of building out the store network ever so quickly. There's still $1.2 billion in trailing operating cash flow.

Margins	4/2006	7/2006	10/2006	12/2006	4/2007	7/2007
Gross	59.5%	59.4%	59.2%	58.8%	58.4%	58%
Operating	11.2%	10.7%	10.3%	10.2%	10.2%	10.1%
Net	7.8%	7.7%	7.2%	7.2%	7.2%	7%
FCF/Revenue	6.6%	5.4%	4.6%	3.7%	1.6%	2.4%

Y-O-Y Growth	4/2006	7/2006	10/2006	12/2006	4/2007	7/2007
Revenue	20.4%	20.8%	22.3%	22.3%	21.1%	20.6%
Earnings	23.7%	20.6%	17.6%	16.9%	15.5%	13.7%

Data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Hot on the heels of a new COO, Starbucks brought in a new CFO: Pete Bocian from technology service provider NCR. Jim Donald took the CEO seat less than three years ago, and the crema on Starbucks' operations looks mighty fresh-faced today. Not that these people don't have industry experience, but they just haven't been running 'Bux for very long.

Let's see if they can turn around the slowing growth and shrinking margins anytime soon. The company is still building stores at a frenetic pace -- 2,400 estimated for this fiscal year, and 2,600 planned for next year, in a premium blend of franchises and in-house locations.

The real growth opportunity may lie overseas, but Starbucks has to face resistance from centuries of coffee traditions in places like France, Italy, and Sweden. According to the company's store finder, there are about 300 Starbucks in New York City, but 25 in Paris -- and not a one in all Scandinavia.

We like our coffee black and boiled in the frozen North ...

A Venti cup o' Foolishness:

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. He is severely addicted to those Caribou mint-chocolate-coffee granola bars, though. Check Anders' holdings if you like. Foolish disclosure is the Punxsutawney Phil of financial forecasting.

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