Once upon a time, in a decade far, far, away, a character on the classic version of Battlestar Galactica asked a lonely Viper pilot the loaded words: "'What sort of a crime is Starbucking?" Excellent question, and we'll keep that in mind when Starbucks (NASDAQ:SBUX) goes on trial in the court of public opinion tomorrow for its fiscal Q3 2006 earnings performance.

What analysts say:

  • Buy, sell, or waffle? Thirteen out of 19 analysts who follow the stock declare Starbucks blameless of all but a buy rating. The other six are holding their tongues, fearing to say otherwise.
  • Revenues. On average, Wall Street thinks the coffee king grew its sales by 22% in fiscal Q3, to $2 billion.
  • Earnings. Profits growth is thought to have been considerably weaker. The consensus is that Starbucks grew profits just 6%, earning $0.17 per share for the quarter.

What management says:
CEO Jim Donald used one word to sum up last quarter's results: "outstanding." We used closer to 400. Read all about it here.

A golden-mean version might go like this: The company grew free cash flow by 74% as capital spending took a breather, giving Fools a clearer picture of just how cash-profitable this business would be if it just stopped pouring money into new stores. Starbucks also reduced shares outstanding by 4% year over year, and announced that CFO Michael Casey will be stepping down.

What management does:
Casey's replacement, once chosen, should seriously consider sending the man a "thank you" note. Over the last 18 months, Starbucks hasn't just continued to grow its sales; it's also decanting more and more fractions of a penny from each dollar of sales poured through its accounts. Rolling gross margins are up 70 basis points, and remarkably, 60 of them filtered down to the operating level. Net margins are holding steady.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

58.8

58.7

58.8

59.1

59.3

59.5

Op.

11.8

11.8

12.0

12.3

12.4

12.4

Net

7.6

7.6

7.7

7.8

7.8

7.8

All 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:
Starbucks has been such a good company, and such a good investment, for so long that Fool co-founder David Gardner, who's owned the stock since 1998 and recommended we do the same in March 2006, felt little need to belabor the obvious when reviewing its performance in the July issue of Stock Advisor. Suffice to say that he stands by his original investment thesis.

Starbucks has "very low debt, healthy cash flow, operating margins above 11%, a valuation under four times sales, and a projected 22% growth rate over the next five years," he wrote. Pricey as the stock is -- even after the 15% decline from its May highs -- David remains convinced this stock can go higher as it takes its U.S. growth story international.

Competitors:

  • AMCON Distributing (AMEX:DIT)
  • Caribou Coffee (NASDAQ:CBOU)
  • Diedrich Coffee (NASDAQ:DDRX)
  • Green Mountain Coffee (NASDAQ:GMCR)
  • Hain Celestial Group (NASDAQ:HAIN)
  • Peet's Coffee (NASDAQ:PEET)

Did you skip that link to Nathan Parmelee's story on Starbucks' Q2 report? Here's your chance to go back and read it. Take it -- and take a 30-day free trial to Stock Advisor, too. As luck would have it, both are completely free.

Fool contributor Rich Smith does not own shares of any company named above.