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Starbucks Shows One of the Widest Moats in Consumer Stocks

Expectations for the coffee chain were high coming into the quarter, and the company did not disappoint.

We're planning a modest increase to our $60 fair value estimate for time-value-of-money adjustments, but see few downside catalysts on the horizon. Management's initial 2016 guidance strikes us as realistic (if not conservative) with so many brand- and technology-related tailwinds at its back (including the global rollout of Mobile Order & Pay). Targets include 1,800 net new store openings (implying 12% unit growth), comp growth "somewhat above the midsingle digits", operating margins increasing slightly (versus adjusted operating margins of 19.1% in 2015), and adjusted EPS of $1.87-$1.89, consistent with our model. We view shares as fairly valued, but would not require much margin of safety before taking a position.

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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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