Friday, October 06, 2006

Calls of Note Part 3

Deutsche Bank notes that as expected, Starbucks' (NASDAQ:SBUX) upbeat analyst day saw the company raise its long-term stores target, with the target increased from 30k to 40k (20k each in US/non-US) from the current 12.4k stores. Extensive discussion was also focused on new products (hot food to be rolled out to 6.5k US stores through 2008, vending machines, iTunes alliance) and international expansion plans (focusing on China, Brazil, India, Russia, Egypt).

SBUX reaffirmed '06 & '07 guidance metrics, including store growth (2.4k in 2007), comps growth (3-7%), EPS ($0.72-0.73 for '06 and $0.87-0.89 for '07) and capex ($950-1bn '07). LT targets over the next 3-5 years were reaffirmed at 20% annual rev. growth and 20-25% EPS growth. Firm maintains their EPS estimates ($0.73 '06 and $0.90 '07) and LT growth projections (21% EPS CAGR from 2006-10).

As firm had expected, SBUX also announced the end of its monthly comps reports. Firm views this constructively, as they continue to believe it will reduce share price volatility around the report dates and enhance focus on LT performance, eliminating a report with little relevance to valuation.

Following the strong share price performance during Thursday's meeting, we could see a short-term pull-back on elimination of monthly comps. Firm would view any related material weakness as possibly creating attractive entry points.

Notablecalls: Out of several (positive) notes on Starbucks I chose Deutsche's as they had been right in their preview and they seem to be the only ones with something else to say other than praise for the company. With the stock just below the 52-week highs, I dont think the market is going to be as "constructive" on elimination of monthly comps announcements as Deutsche is. Looking for a pullback after $5 run in two days.

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