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Starbucks Should Remain Caffeinated

By Philip Saglimbeni – Jan 27, 2014 at 9:32AM

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With shares having corrected approximately 10% in recent weeks, the time seems right to consider stepping into Starbucks for long-term growth.

Starbucks (SBUX -1.86%) is often considered one of the most successful growth stories of all time. The company transitioned from domestic coffee brewer to worldwide coffeehouse leader in mere decades.

With so much past success and an already massive global footprint, many investors are often surprised to learn that Starbucks is still growing rather quickly. In fact, the company still appears to be a better investment going forward than smaller competitors like Dunkin' Brands Group (DNKN) and Green Mountain Coffee Roasters (GMCR.DL).

Superior brand
The single most important asset Starbucks has is its prestigious brand image. The company is able to sell its signature lattes at elevated price levels because customers have proven continuously that they are willing to pay more for the Starbucks name.

However, the Starbucks brand is no longer just about coffee. The company has been busy expanding its product lineup over the years to include teas, smoothies, handcrafted sodas, and a wide assortment of food offerings including pastries from recently acquired La Boulange bakery.

Superior growth
Not surprisingly, Starbucks' powerful brand recognition among consumers has made the company a force to be reckoned with in the beverage/restaurant industry. Here is a breakdown of the company's projected growth in 2014 compared to the growth of smaller competitors Dunkin' Brands Group and Green Mountain Coffee Roasters:

Company

Dunkin Brands

Green Mountain

Starbucks

Revenue Growth 2014

7.2%

8.2%

12.2%

EPS Growth 2014

19.2%

12.4%

17.3%

*Starbucks and Green Mountain's fiscal years end in September

In terms of revenue growth, Starbucks is projected to be the clear leader among all listed competitors. Analysts expect the company to grow sales 12.2% in 2014 to $16.7 billion, up from 2013's $14.9 billion, approximately.

The company's earnings-per-share growth is expected to be even more robust in 2014. Although Starbucks' projected EPS growth rate of 17.3% is slightly behind that of Dunkin' Brands' 19.2%, the growth is still notable.

Starbucks' growth is even more impressive when we take into account the company's massive size compared to competitors. Starbucks has a market capitalization of $57.15 billion, which is more than 10 times that of Dunkin' Brands' $4.97 billion market cap and almost five times that of Green Mountain's $11.76 billion market cap.

Future growth drivers
Despite having an already substantial presence in numerous countries around the world, the industry-leading growth projections for Starbucks indicate that the company's new growth opportunities are substantial.

One of the primary growth drivers for Starbucks in the foreseeable future is the company's massive expansion in Asia. For fiscal 2013, the company's China/Asia Pacific segment outgrew all other major segments, with a 9% total increase in sales. In the recently announced first quarter of fiscal 2014, the CAP segment grew revenue 25% on a year over year basis.  

Additionally, management still expects to open another 750 stores in the China/Asia Pacific region in 2014, which would more than double the company's 2013 new store opening count of 317.

Another source of growth for Starbucks is the company's continued roll-out of its La Boulange bakery brand. At the end of fiscal 2013, the company had integrated the bakery products into roughly half of its 7,500 company-owned, domestic store locations. Management expects to complete the transition near the end of fiscal 2014.

Still the best
Since Starbucks has enjoyed incredible success over the years, some investors may overlook the company as a growth investment. This is a mistake, as Starbucks is not just a great investment--it remains an industry leader in many ways. With rapidly growing revenue and earnings, shares of Starbucks should remain caffeinated in the long term.

Philip Saglimbeni owns shares of Starbucks. The Motley Fool recommends Green Mountain Coffee Roasters and Starbucks. The Motley Fool owns shares of Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
GMCR.DL
Starbucks Stock Quote
Starbucks
SBUX
$101.62 (-1.86%) $-1.93
Dunkin Brands Group Stock Quote
Dunkin Brands Group
DNKN

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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