KFAC Commentary: Background & Rationale for Recent Starbucks Trade

Nicholas Coppola, CFA

 April 3, 2020

 

Earlier this week, we established a new position in Starbucks Corporation (SBUX) as we seek to take advantage of the market downturn, using the current environment to add high-quality companies to portfolios without compromising on price. 

We view Starbucks as an iconic brand on a strong long-term trajectory, with management committed to delivering double-digit earnings per share (EPS) growth over the long-term.  Drivers include same-store sale growth, domestic and international expansion, and a larger push into the consumer packaged goods industry, benefitting from their recent partnership with Nestle.  We also believe this company has a hard to duplicate footprint in attractive locations in the United States and a large opportunity for growth in China.   While we acknowledge that Starbucks is likely to experience severe headwinds from social distancing measures and store closures due to COVID-19, we also think that recent selling pressure created an attractive buying opportunity with the stock trading at ~22x trailing twelve months earnings.  Note this is a significant discount relative to its history (i.e., prior ten years have averaged ~29x).  And in addition to the potential for long-term double-digit EPS growth, at the current price, the stock carries an attractive ~2.5% dividend yield.  As always, there are a number of risks to our investment thesis, but we think the risk/reward profile skews decidedly to the positive. 

We hope you are well and thank you again for your partnership.  Please feel free to reach out with any questions regarding our new Starbucks position or your broader portfolio. 

Sincerely,

Nicholas Coppola, CFA
Senior Portfolio Manager 

 

Nicholas Coppola, is a Senior Portfolio Manager at Kays Financial Advisory Corporation. He can be reached at (770) 951-9001 or at ncoppola@scottkays.com.

 

This report and Mr. Coppola’s comments are provided as a general market overview and should not be considered investment or tax advice or predictive of any future market performance. Any security mentioned in this report may not be suitable for all investors. No investment mentioned in this newsletter constitutes a recommendation to buy, sell or hold a particular investment. Such recommendations can only be made on an individual basis after an assessment of an individual investor’s risk tolerance and personal circumstances. Past performance of any investment mentioned is not a guarantee of future performance. Statements regarding the investment concerns and merits of any investment and fair market value computations are strictly the opinion of Kays Financial Advisory Corporation. Employees of KFAC and KFAC clients may have positions and effect transactions in the securities of the issuers mentioned here in.