Three years ago, a friend gave me a book called A Writer's Companion. It's a guide filled with facts and figures about people, literature, music, art, cities, battles, business, and much more. So, it's surprising that, although I skim the book periodically, I haven't used it yet.
One part of the 1,000-page book lists the year that popular consumer products entered mass use. For example, baby carriages: 1860s. Antiperspirants: 1970s. Clothes, ready-made: 1860s. Ice cream cones: 1910s. Waterbeds: 1970s. Matches: 1840s. Geared fishing reels: 1890s. By far the oldest item on the list is... (drum roll, please)... coffee, 1700s. And coffee's history actually stretches to the 1100s.
The coffee giant
When we purchased Starbucks (Nasdaq: SBUX) in July 1998, the company operated 1,700 stores and sported $1.1 billion in trailing 12-month sales. Today, Starbucks oversees 3,800 locations and the company's trailing sales top $2.1 billion.
But this is only the start. That number of locations -- 3,800 -- is only a fraction of an eventual 20,000 or 25,000 stores that Starbucks may one day claim. The company was valued at $4.5 billion when we purchased it about 930 days (thirty months) ago. It's worth $8.1 billion now. Given good graces, in 10 years Starbucks' sales could top $10 billion and its market cap could top $30 billion.
You might feel it's silly to think so far ahead (the future is always uncertain!), but as long-term investors, we always try to think at least three to five years ahead, and in more stable industries (coffee, for example -- what has been more stable the past 500 years?) thinking ahead even further isn't unreasonable. Even as risk-taking Rule Breakers, we want to buy businesses that we can own successfully for decades.
Tonight the coffee leader reports quarterly results. They shouldn't burn anyone. Earnings per share is expected to be $0.23, and because Starbucks preannounced sales, we already know that revenue rose an impressive 26% to $667 million, while same-store sales rose an even more impressive 10% year-over-year. In fiscal 2001 (ended September), Starbucks is expected to earn $0.91 per share. The $43 stock trades at 47 times that estimate -- a healthy premium to its 25% long-term growth rate.
Operating margins at Starbucks' North American stores have remained near a strong 15% since early 1999, while the other segments of Starbucks have an operating margin of 23%. Last year, the company became profitable in Japan sooner than expected, and this month the first Starbucks in Switzerland opens as the company spreads from England into Europe. As Fool analyst Bob Fredeen wrote yesterday, expect margins to be slightly higher this quarter.
Starbucks recently had $120 million in cash and equivalents and only $6.5 million in long-term debt. Its expansion continues to be funded without adding the burden of debt to the future. Very nice! Tonight's results will be discussed on the Starbucks board. Stop on by.
Several new drugs at Amgen
Last night, Amgen (Nasdaq: AMGN) reported fourth-quarter sales of $951 million, up 2.6% from $926 million last year. Its operating and net income declined from last year due to higher selling and general costs and special charges. For the year, sales were $3.62 billion, up 8.6% from $3.34 billion in 1999. Selling, general, and administrative costs rose 26%, partly as Amgen prepares to market three new drugs this year. Even so, we'll be watching this cost closely. Overall, Amgen's guidance for 2001 is what matters most.
Amgen expects earnings per share to rise approximately 16% in 2001, to $1.23. The $69 stock trades at 56 times that estimate. This year, Amgen could launch three new drugs. Two are new, longer-lasting versions of its blockbuster drugs, Epogen and Neupogen. Importantly, Amgen will not provide licensing of its new version of Epogen, called Aranesp, the way that it did with Epogen. (Called Procrit, Johnson & Johnson's (NYSE: JNJ) licensed version of Epogen is a billion-dollar blockbuster for the Drip Port holding, and Amgen only gets royalties.)
Keeping Aranesp to itself, Amgen is pursuing a potential $5 billion market. Management hopes for FDA approval for Aranesp in the first half of 2001, while Amgen's longer-lasting Neupogen, called SD-01, could be approved in the second half of this year.
Amgen also has FDA applications pending for drugs treating prostate cancer and arthritis. Overall, Amgen's drug pipeline has grown considerably stronger the past two years. According to the website and to Motley Fool Research reports, Amgen's pipeline has the following number of candidates in trials (Note: numbers may alter slightly depending on the number of possible uses for a product that you count):
Filed with FDA Phase III Phase II Phase I
3 2 6 2
A Fool, 71MGB, recently posted a message on our Rule Breaker discussion board explaining what he believes Amgen may look like in five years. We'll be happy investors if he proves even partly correct.
To close, another Fool, ptnewell, recently posted a positive argument for Amazon (Nasdaq: AMZN), and his post has received several recommendations from other Fool board users. We'll see Amazon's fourth-quarter results next week.
Until then, I bid you to Fool on!
