Starbucks (NASDAQ:SBUX) has always proven itself to be ahead of the adoption curve. As we see the rise and fall of today's businesses we know that only those who choose to stay ahead of the industry can expect to see growth and survive. With its pro-activity Starbucks changed the coffee shop concept and attracted millions of customers to its outlets. It established itself not just as a premium coffee restaurant but as an experience provider. This designer coffee maker is known for providing its customers solutions and convenience they need in the present or in the future. Starbucks manages to find ingenious ways to make its customers stay longer at its outlets.
Now Starbucks has made another headline in mainstream media by announcing that plans to install 100,000 wireless table chargers that will charge customers' cell phones while they stay at the store getting charged with a kick of caffeine. Keeping cell phones charged is an issue for users of energy draining smart phones. This service would allow customers to charge their cell phones without being tied up to a table that is near the power outlet. Starbucks has struck a deal with Duracell that is owned by Procter and Gamble (NYSE:PG) to install 100,000 Duracell Powermats at its outlets nationwide. Starbucks tested the service in Boston and San Jose stores before rolling out the nationwide installation. This technology is not in common use at present but it is expected to be adopted by smartphone users in the coming time as has happened with other convenience gadgets.
We have witnessed that Starbucks has a history of making available the technology before it is in common use of masses. More than a decade back Starbucks provided Wi-Fi service to its customers at its stores. This was the time when this service was not a widely used technology and few devices could use Wi-Fi technology. That is an important distinguishing factor that sets Starbucks apart from other competing coffee shops and restaurants for being a pioneer in its industry. This has helped Starbucks in grabbing customers.
A recent example of such technology is Starbucks' service of paying bills through cell phones. Again this is technology that is rarely used, but once again Starbucks is pioneering the service. This strategy of introducing the latest technology to its customers not only provides convenience but also promotes the Starbucks brand as a techie and trendy designer coffee maker. This strategy seems to be paying off.
With the way technology is evolving and new gadgets are securing their position among the masses we can expect exciting technology will continue to be developed. We can also expect Starbucks to continue to be an early-adopter of new technology as it becomes available. Here we see that analysts on the whole are quite optimistic about the financial prospects of the company. The mean target price of twenty four brokers is $87.83 which is an over 18% return on the current price of about $74. The median price, if it materializes, will provide a price return of over 21%.
The most optimistic valuation of Starbucks provides an upward potential of over 32%. The most pessimistic valuation is $73 reflecting a loss of around 1% on the share price. Starbucks' dividend yield on the current price using its TTM dividend is 1.27%. An attractive price return and dividend yield makes Starbucks a worthy investment at its current price level.
If we look at the relative valuation making use of the P/E and PEG ratios we receive a green signal to go long on Starbucks' stock. Starbucks' P/E is lower compared to the industry but much higher compared to the sector and S&P 500. If we look at the P/E in isolation we see $27.71 price per dollar which is quite a high price for a stock. But scaling the P/E with the expected growth, we reach an optimistic valuation of Starbucks. The PEG of 1.46 is much lower compared to the industry, sector, and S&P 500. Starbucks seems to be an attractive investment based on a relative valuation at its current price level.
As in the past, Starbucks is expected to be successful in attracting more customers to its outlets by introducing the latest tech based services. The Starbucks experience has so far impressed customers and has drawn millions to buying its premium coffee and enjoying its unique outlet experience each year. As technology is evolving Starbucks is developing its Starbucks experience further and it can be expected that Starbucks will be able to produce good financial results in the coming periods. Its relative valuation and target price estimate show that it is undervalued and presents a good upward potential and presents itself as a good investment at its current price level.
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