Starbucks (SBUX) and Nestle in the news with an alliance deal

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Starbucks (SBUX) and Nestle in the news with an alliance deal

Published Date: 2018-05-10 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Starbucks (SBUX) and Nestle in the news with an alliance deal

Starbucks opened its first store in 1971. It now has over 28,000 stores in 75 countries. Starbucks has not only diversified into different locations it also now sells premium coffee, tea, packaged coffee, juices, bottled water, pastries, and various lunch items. They have a number of different brands in their stable including Teavana, Tazo, Seattle's Best Coffee, Evolution Fresh, La Boulange, and Ethos.

Company owned stores generate 79% of income, licensed stores 11% and consumer packaged goods 10% of revenue.

By geography, 70% of its revenue last year was generated in the Americas, 13% in China / Asia Pacific, 5% in Europe, Middle East, and Africa.

The sales growth has declined in recent years. However growth in China is ramping up with a revenue growth of 30%.

This week Starbucks announced it will form an alliance with Nestle. The following is an extract from this announcement.

A picture of Starbucks

SBUX will use some of the money it received from Nestle, as part of this deal, to increase share buybacks and dividend payments from a planned $15 billion to $20 billion over the next 3 years.

This deal should extend Starbuck's reach into international markets where Nestle is strong and Starbucks is weak.

SBUX current price is $57.45. Current P/E is 25.3, 20% below its 5 year average P/E of 31.3.

The company has been paying an increasing dividend for 8 years.

Current Dividend yield is 2.09% and has grown 24% from last year and the average dividend growth for the last 5 years has also been 24% per year

S & P credit rating is a healthy A-

Debt to equity levels are 42% Market cap $79.6 Billion

Starbucks has a number of initiatives in place to retain and grow revenue.

The current valuation is attractive with the potential to provide a total annual ROR to 2021 of 21%. This combined with the company's strategy to buy back shares, grow dividends and the Nestle deal could make this company a good long-term investment for a growth portfolio.



Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research.


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