Starbucks Is Set for Growth
We're more optimistic about its medium-term potential and have raised our fair value estimate.
We believe Starbucks’ (SBUX) recently reported fiscal third quarter will mark a turning point in the investment narrative, where the market shifts its focus to how customer experience, menu innovation, and digital initiatives solidify the company’s wide economic moat and position it for future growth. The key highlight from the quarter was comparable growth of 7% in the United States (4% ticket, 3% transaction) and 6% in China (4% ticket, 2% transaction), indicating that Starbucks is working through the experience and innovation issues we’ve called out in the past and validating why this stock was our top pick heading into the year.
We think Starbucks can maintain its current growth trajectory for several reasons. Our discussions with personnel at legacy and remodeled locations indicate that simplified operations and labor reallocation efforts are unlocking meaningful throughput capacity and improving speed of service. While the recently announced Brightloom partnership is meant to assist international licensed partners in developing a digital flywheel, we believe it can also lead to experience refinements and new convenience-focused Starbucks formats (similar to Starbucks Now in China). In addition, Starbucks’ innovation pipeline is strong: The Nitro Cold Brew platform will continue to be a key sales contributor as it is rolled out nationwide, international consumer packaged goods products have been well received in new markets via the Global Coffee Alliance, and replacing Mercato with a new fresh food program should have a positive impact in 2020. With loyalty member acceleration and increased delivery footprints in the U.S. (which will have national coverage through Uber Eats in early 2020) and China, we see 4%-5% global comps as realistic in the next two to four years.
R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.