Starbucks CorporationSBUX

Morningstar Rating

Stock Research and Analysis

by R.J. Hottovy, CFA

Despite a harsh consumer environment and the emergence of lower-priced substitutes, Starbucks remains the dominant player in specialty coffee. Although we doubt the firm can return to its lofty historical growth numbers, particularly in the domestic Read more

Bulls Say

With less than 10% share of coffee consumption in the U.S. and about 1% worldwide, Starbucks has opportunities to expand its customer base. Only 17% of U.S. adults drink a daily cup of coffee, according to the latest National Coffee Association Annual Drinking trends survey.

New product innovations and a heightened focus on the customer experience should boost sales at existing restaurants over the long run. As the economy gradually improves, we believe Starbucks could capture greater wallet share of health-conscious breakfast consumers.

The expansion of the Seattle's Best Coffee franchise program could provide incremental licensing fees and bolster margins. We expect the introduction of Seattle's Best Coffee at 9,000 Subway locations by the end of 2009 to be margin-accretive.

Given the firm's sizeable cash position, we expect the firm to increasingly return value to shareholders in the coming years through possible share repurchase programs and/or cash dividends.

Starbucks remains a very respected and well-known brand. Read more

Bears Say

If recessionary pressures persist, customers could scale back on purchases of premium coffee or trade down to more affordable options such as McDonald's.

Chairman and CEO Howard Schultz has said that overexpansion has led to a watered-down Starbucks experience. This could prove difficult to reverse.

Aggressive store openings during the past 10 years may have cannibalized the firm's sales.

Volatile labor costs and volatile commodity prices could further weigh on operating results.

Although they represent a small fraction of the overall market, the increasing popularity of at-home single-cup coffee brewers could represent an emerging source of competition. Read more

Strategy

To defend its market position, Starbucks is focused on revitalizing its customer experience, including new store-design improvements and prepaid cards offering additional in-store perks. This initiative Read more

Management

Starbucks founder and chairman Howard Schultz returned to the role of CEO in January 2008, replacing Jim Donald. Although we typically prefer the roles of chairman and CEO to be split for corporate-governance purposes, we believe Schultz, who previously Read more

Profile

Through a chain of about 16,600 company-owned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, complementary food items, and other coffee-related Read more

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