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Starbucks' Competitive Edge Sharpens

Starbucks' Competitive Edge Sharpens

We view Starbucks as one of the most compelling growth stories in the global consumer space today. The company is poised to continue top-line growth and margin expansion thanks to its menu innovations, sustainable cost advantages, and evolution into a diversified retail-consumer packaged goods platform.

The stock earns a wide economic moat based on a brand-intangible asset that commands premium pricing and meaningful scale advantages. We believe the company's wide moat is strengthening, and therefore have assigned the stock a positive moat trend.

Few national or regional restaurant or specialty coffee operators are willing--or able--to compete with the in-store customer experience that Starbucks offers. Moreover, Starbucks now has a retail concept portfolio that offers a solution to any real estate setting. For example, large-format Roastery locations offer a unique retail destination in major urban markets, while smaller Starbucks Reserve stores offer upscale experiences in urban and suburban areas.

Lastly, the company's mobile order and pay platform dovetails nicely with its existing digital and loyalty platforms, and could be a game-changer across high-frequency retailers and restaurant concepts.

The stock currently trades at about a 17% discount to our fair value estimate, providing investors with an attractive entry point into this high-quality name.

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About the Author

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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