Friday File: Starbucks Pops, Insurance Drops, Buying after Stops

By Travis Johnson, Stock Gumshoe, November 2, 2018

While we wait to see what Berkshire Hathaway’s quarter looked like, how’s the rest of the portfolio holding up?

Holy Cow, Starbucks (SBUX)! Haven’t seen that stock take this big of a pop after earnings in a long time, and sentiment seems to have changed so quickly to a “this is a safe capital return story in a volatile market” that I’m a little shocked. I expected a good end to the year from Starbucks, but not quite this good — they are now within a whisker of all-time highs, after four years of essentially flat trading that made growth investors give up and go elsewhere.

The report was not as fantastical as you might assume from the sharp reaction in the stock price, which was up almost 10%. It really falls into the “a little better than expected” category, with guidance that was encouraging but not dramatic as they telegraph that 2019 will be a year when they invest pretty heavily in growth and keep cutting costs and “streamlining,” particularly because the benefits from their new Nestle deal in packaged goods won’t really hit until 2020. They say their global comparable same store sales will probably be not much higher than 3-4% for this next fiscal year, with revenue growth of 5-7%, and they announced that the predicted non-GAAP earnings per share range for the coming year is now $2.61-2.66 (up from the 2.43 just reported for FY2018).

That’s about 9% earnings growth, though the expectation is that it will pick up a little bit in 2020 and after. That’s not all that exciting, analysts were already penciling in $2.64 in 2019 and $3 in 2020 (that would be 14% growth), and a lot of that per-share improvement is driven by their huge share buybacks… but it’s still nice to see some optimism. And you can see how even a mild bit of optimism about growth and some clarity on their cost cutting can help drive the shares higher, particularly when the biggest “story” driving the stock gets turned upside down.

That “story” for Starbucks was that the US business was moribund, that they’re unable to increase same store sales or re-ignite the growth they were known for in past years and have to count on China… and it’s true that China is the big growth engine for the future, but the biggest single ...

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