Starbucks Steams Profits (SBUX, CBOU)

Includes: CBOU, SBUX
by: Daniel Andres Jacome

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 (NASDAQ: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 (NASDAQ: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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