Why You Should Buy Starbucks’ Dip

964 WordsJul 10, 20184 Pages
Although there are several specialized coffee players in the market today, one cannot overlook the magnitude of success and grandeur that Starbucks has achieved over the past many years. Its fast-growing coffee house along with tea and sandwich restaurant chain now makes it a dazzling investment idea. More than just coffee The company’s founder and CEO, Howard Schultz, has been successful in creating Starbucks into something that we didn’t really know we needed until we had it. He has meticulously crafted a brand for the company that adds a psychological value to its offerings. Thereby, when you buy a cup of coffee at Starbucks, you buy an experience. The somewhat quiet, not-so-rushed atmosphere along with dimmed ambience and friendly…show more content…
In comparison, Dunkin Brands Group (DNKN) and Krispy Kreme Doughnuts (KKD) have observed, if at all, ordinary revenue growths. In the most recent quarter, the company’s revenue increased 12% to $4.2 billion and earnings increased 25% to $0.71 per share. The results were in line with expectations of $4.29 billion and $0.69, respectively, for the top line and bottom line figures. Driven by a 4% increase in traffic, the global comparable store sales grew 5% during the quarter. Consolidated operating income rose 29% to $813.5 million and operating margin expanded 260 basis points to 19.2%. If you discount the one-time litigation charge that resulted in negative free cash flow (FCF) of $1.7 billion, the FCF has grown about 34% during the quarter. The ample FCF allowed it to repurchase roughly 0.6 million shares of its common stock and maintain its quarter dividend of $0.26. Starbucks announced its first ever cash dividend in March of 2010, and since then has hiked its payouts in each of the three years thus far. This also makes it an interesting brand-dividend play as well, as explained in one of my prior articles. It is ranked 76th on Forbes’ list of World’s most valuable brands and has about 42.5 million fans on social media, second to only Coca-Cola (KO). Expectations Starbucks will announce its fiscal-second quarter results on April 24 and analysts estimate double-digit growths in both revenue and earnings. The

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