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

11 Good Reasons to Cancel Amazon Prime
Budgeting

11 Good Reasons to Cancel Amazon Prime

You probably aren't using most of the perks tucked into that $119 annual fee -- which you don't need to pay to get the free Amazon shipping you crave.
April 13, 2021
Who Should Return Their Third Stimulus Check to the IRS?
Coronavirus and Your Money

Who Should Return Their Third Stimulus Check to the IRS?

Some people who receive a third stimulus check are required to send it back to the IRS. Others can return it voluntarily.
April 12, 2021
2021 Child Tax Credit Calculator
Tax Breaks

2021 Child Tax Credit Calculator

See how much money you'll get in advance under the new child tax credit rules for 2021.
April 14, 2021

Recommended

Gen I: What Investing's New Class Looks Like
investing

Gen I: What Investing's New Class Looks Like

COVID-19 has been a disruptive force in the global economy. But it also has created opportunity for a new group of investors dubbed "Gen I."
April 9, 2021
Psst: If You’re Looking for an Unloved Investment Sector, How About Uranium?
investing

Psst: If You’re Looking for an Unloved Investment Sector, How About Uranium?

Uranium has become the forgotten fuel, but that could change … and if it does, there could be some interesting opportunities.
April 7, 2021
SRI and ESG are Not Interchangeable. Here’s Why We Choose SRI.
investing

SRI and ESG are Not Interchangeable. Here’s Why We Choose SRI.

SRI investing leaves room for judgment calls that better align with investors’ values. Meanwhile, ESG investing is more vulnerable to companies gaming…
April 7, 2021
Bitcoin: Should You Invest? With Tyrone Ross
Becoming an Investor

Bitcoin: Should You Invest? With Tyrone Ross

Pretending it’s a fad that will go away didn't work for the internet, and it won’t work for cryptocurrency, either. But there are still so many questi…
April 6, 2021