Starbucks Steams Profits (SBUX, CBOU)

It's never about the money -- it's how well you build an enhanced experience around your core competencies. Oh, and it helps if you treat your employees right.

On that front, coffee king Starbucks (SBUX) ripped the cover off the ball Thursday morning by boosting profits and raising forecasts (see conference call transcript here). Shares rallied 10% on the news. The company cited terrific growth in China. Goldman Sachs liked it -- they issued a $41 price target.

Look for Starbucks' earnings to accelerate sharply as the company expands and leverages its brand equity.

Careful, competitors: Starbucks' contents are hot. And to think that the tiny and unprofitable Caribou Coffee (CBOU) ever had a modicum of a chance. Caribou Coffee, which operates ski-lodge formatted coffeehouses in the United States, went public recently. Insiders at Caribou are buying stock like madmen, but the company couldn't make a dime if their life depended on it.

The trade here is a lay-up: long SBUX; short CBOU. We have a $5 price target on Caribou.

SBUX 1-yr Chart

CBOU 4-Month Chart

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Comments

[swissone:]

So.... How's your long SBUX position doing?

2008 Jul 06 08:18 PM

[Dan Jacome:]

no longer following SBUX -- stopped out for 10% loss in 2007. Got in in high 30s and as you know stock took it on chin

2008 Jul 06 08:35 PM

[Dan Jacome:]

also, I should note that shares rallied 15% after the article was written : ) -

Article was written 2.5 yrs ago: as you know, we have a 12 month time frame on anything we write about, generally speaking.

Please email me if you have further questions, swissone.

2008 Jul 06 08:43 PM