Goldman: Conditions Right for 45% Starbucks Upside

Starbucks Corp. (SBUX), which have fallen roughly US$10 since climbing above US$39 in November 2006, could receive a boost as Goldman Sachs has added the company to its Americas Conviction Buy list.

“Recent market turbulence compounded by concerns over brand erosion and earnings quality have created a compelling buying opportunity in Starbucks shares – a high quality company that offers tremendous long-term growth prospects,” the firm's analyst Steven Kron said in a note to clients.

His US$43 price target represents upside of 45% given Thursday’s closing price of US$29.59 for Starbucks shares.

The coffee retailing powerhouse could see its shares move following a shareholder meeting on March 21 if the company reiterates its targets and strategy, Mr. Kron said, partly because of the company’s recent weakness and negative publicity.

If Starbucks meets earnings per share estimates when it reports second quarter results for 2007 on May 3, the market could also bid up the stock given already weak expectations, he added.

SBUX 1-yr chart:

Comments

[Sonia Mirza:]

Funny thing - I was waiting for this. Had been emailing the CNBC fast money crew for about 2 weeks now with no answers. Figured my view wasn't important, relatively. Even sent an sms to Fast Money tonight 3/16/07 and they didn't air my comment but rather Kyle from CA's about the upside potential of SBUX.

Anyway, coupled with the GS nod, SBUX has been expanding not just geographically (Asia/mideast/Brasil) but also within the product space (into Teas via China for example - there was a whole article in the WSJ about this a few months ago). The GS move might be the catalyst needed to awaken wary investors/analysts... Agree with you on the boost manifesting, although the time frame remains questionable...

2007 Mar 16 08:29 PM

[WACG:]

I am less enthusiastic about SBUX than many are for a very simple reason. I have noticed a decline in the quality of their coffee. This observation is not isolated to a single store. I have experienced a noticeable decline in quality of the coffee they serve at at least 7 stores from North Carolina to Minnesota. I am NOT pumping the outfit but, by comparison I think Caribou Coffee serves a superior product. In short, I think part of the price decline might be assigned to a decline in coffee quality.

2007 Mar 17 09:19 AM

[Johnny Bitc...:]

If you want a catalyst, you might consider looking for a business catalyst rather than a GS opinion catalyst.

Great company. Still great growth. But making bold calls toward the end of an economic cycle and all the uncertainties with housing and retail, is stupid.

No problem with buying it as a long term buy, but it's hard to imagine that there is some great inefficiency in pricing a $20 billion plus company which has been America's greatest growth story of the past 15 years !

If there is inefficiency, it's much more likely that expectations are too high at this stage.......but long term, it's still a reasonable buy.

john.

2007 Mar 17 05:46 PM

[Sonia Mirza:]

A catalyst for the "average" investor. Stupid is a bit harsh isn't it? No need to be rude. Or then investor sentiment is being hugely disregarded. You might not consider the impact of an IB's rating, but the average investor does. Heck I look at it just out of curiosity, doesn't mean I will buy when GS says it's a Buy. This type of incident should, under normal circumstances, cause a reaction. If it isn't that hard to price a 20bill+ co, then why are there sellers and buyers alike? one of them has to have mis-priced the PVGO...

Not everyone has DCF at their disposal, and even those who do might not accurately predict and therefore price the security. I believe I mentioned in my last comment that the time frame for this upside to manifest is questionable...and the reaction in price after their move into Teas was negligible. Correct me if I;m wrong but his would be a business move, not a GS opinion, correct? The lack of price movement was likely due to the news being overshadowed by other economic issues that took precedence at that time.

As for the taste - I have to agree - but it never was about the taste of their coffee but the "sbux experience"...check a few of their 10K's and/or AR's from 2002-2005.

2007 Mar 19 06:30 PM