Editor's note: Shares of Starbucks have risen over 12% from the date (7/18/13) Hedgeye Restaurants Analyst Howard Penney added it to Investing Ideas. The S&P 500 is up approximately 6% in that time.
Following the all-star quarter from Starbucks in 4Q13, the company appears to be firing on all cylinders heading into FY14. A strong commodity tailwind, international growth, the beginning of a recovery in the EMEA segment, and expansion into new segments of the global food and beverage industry are all long-term bullish factors moving forward.
The only slight negative stemming from what was, overall, a bullish conference call last quarter was management reigning in expectations for FY14 -- especially expectations for same-store sales in the Americas.
Our recent store visits in the Northeast suggest that the holiday season has not been as robust as the company anticipated. We believe the trickle-down effect on slowing same-store sales are not yet fully reflected in the current share price. Considering earnings for 2014 are likely to be revised down slightly and valuation is close to a 3-year high, we see some downside in the stock.
Starbucks is a great company with a strong and feasible long-term strategy. That being said, we expect to see the stock adjust accordingly to slower revenue growth in the early innings of 2014.
