Markets

Starbucks: Piping Hot

This specialty coffee maker's shares surged following surprisingly strong quarterly earnings. And analysts say the company has some promising initiatives on tap.<br>

Starbucks continues to generate good buzz. The coffee shop king served up better-than-expected quarterly earnings, and new initiatives have analysts believing that Starbucks' future is as strong as its premium brew.

Starbucks reported earnings of 22 cents a share for the first quarter of its fiscal year, up 22% from the same period a year ago, and the company offered a bright outlook for the rest of the year. The stock (symbol SBUX) got a caffeine rush on Thursday, surging 10%, in a market that was down sharply.

Starbucks has already shown that customers are willing to pay frothy prices for its lattes, Frappuccinos and other drinks. But the company isn't content to be just a coffee seller. It differentiates itself through its unique coffeehouse experience -- and it's capitalizing on its brand in ways that don't necessarily have anything to do with coffee -- namely, food, music and movies.

Bear Stearns analyst Ashley Reed Woodruff says the company is benefiting from its lunch offerings, and it's expanding its hot breakfast sandwich menu to additional markets. Plus, "it's had great success with its entertainment strategy," notes Prudential analyst Larry Miller. In addition to selling CDs, the company is partnering with a movie studio to market and distribute an upcoming film.

As it broadens its range of offerings, Starbucks is also proceeding with plans to keep expanding. This year, the company plans to add 1,800 stores to its more than 10,000 existing locations. And although some urbanites may have the impression that Starbucks is already on every corner, Morningstar analyst Carl Sibilski says the company has plenty of room to grow. Ultimately, he thinks, it could have more than twice as many locations as the ubiquitous McDonald's.

Starbucks is growing abroad, too. Woodruff points out that its international business -- in the U.K., Canada and other countries -- accounts for an increasing proportion of profits. And China represents significant long-term opportunity, in her view.

The stock, at $34, sells for a lofty 51 times the 68 cents per share that analysts expect the company to earn in the fiscal year that ends in September. Sibilski doesn't view the stock as overpriced, but when expectations are running this high, he warns, "a hiccup in operations could send the stock reeling."

--Lisa Dixon

Most Popular

2 Credit Card Gotchas to Watch Out For
credit cards

2 Credit Card Gotchas to Watch Out For

After an infuriating wake-up call with her own credit card company, one financial services consultant wants consumers to know something: It’s smart to…
October 20, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
October 15, 2020
When Retirees Question More Retirement Income
annuities

When Retirees Question More Retirement Income

What would you say if I told you that you could safely get significantly more retirement income from your retirement savings? That’s what I call an In…
October 20, 2020

Recommended

Stock Market Today 10/21/20: Snap Soars, Netflix Nosedives as Stocks Sit and Wait
stocks

Stock Market Today 10/21/20: Snap Soars, Netflix Nosedives as Stocks Sit and Wait

Stocks mostly treaded water Wednesday as stimulus negotiations continued, but Snap (SNAP) and Netflix (NFLX) provided some fireworks.
October 21, 2020
Stock Market Today 10/20/20: Glimmer of Stimulus Hope Gives Stocks a Small Lift
stocks

Stock Market Today 10/20/20: Glimmer of Stimulus Hope Gives Stocks a Small Lift

Tuesday's rigid stimulus deadline seemingly blurred as House Democrats and the White House made progress toward a middle ground.
October 20, 2020
Stock Market Today 10/19/20: Investors Lose Their Nerve as Relief Deadline Nears
stocks

Stock Market Today 10/19/20: Investors Lose Their Nerve as Relief Deadline Nears

Retail sales in September improved by more than expected and a consumer sentiment reading improved, providing the market with a tiny lift Friday.
October 19, 2020
Stock Market Today 10/16/20: Cheerful Consumer Data Gives Stocks a Small Bump
stocks

Stock Market Today 10/16/20: Cheerful Consumer Data Gives Stocks a Small Bump

Retail sales in September improved by more than expected and a consumer sentiment reading improved, providing the market with a tiny lift Friday.
October 16, 2020