payphoto/iStock Editorial via Getty Images Starbucks Corporation (NASDAQ: SBUX ) is looking interesting as shares have declined around -31.21% ($39.42 per share) from their 52-week highs. YTD, SBUX has declined more than the indices, falling -25.47% compared to -8.72% for the S&P 500 and -14.87% for the Nasdaq . On Wednesday, 3/16/21, news broke that Kevin Johnson would be retiring after 13 years at SBUX, where he served as its CEO for the previous 5 years. Despite Mr. Johnson announcing his retirement, shares held up fairly well as Howard Schultz will fill the void as CEO on an interim basis until a new CEO is named.
There is a lot to like about SBUX. Over the past five years, SBUX has had a positive growth trend for revenue, net income, and free cash flow (FCF). SBUX has been buying back shares and has become a strong dividend growth company with 11 consecutive years of dividend increases. Living in NYC, there is no shortage of SBUX locations, and I have noticed that there is an increasing number of teenagers going to SBUX. Beyond the financials and growth aspects, SBUX brand awareness and loyalty are especially interesting to me. Having a younger demographic of customers is critical for the longevity of a brand. In my opinion, it’s bullish that SBUX has a large customer base of teenagers and young adults because their habits of going to SBUX should continue for many years to come. SBUX is starting to look interesting, and I may start a position as shares may be finding a bottom. Kevin Johnson’s retirement doesn’t come as a surprise and thankfully, the stock isn’t declining from the announcement
Mr. Johnson was named CEO in 2017 as the successor to Howard Schultz. The news of his retirement wasn’t a spur-of-the-moment decision, as he informed the board last year. Mr. Johnson told the board that as the pandemic winded down, he would consider retirement. This left the board plenty of time to develop a plan for when the inevitable occurred. After 13 years, Mr. Johnson decided it was time to hang it up and who better than to step in on an interim basis than Howard Schultz?
From 1987 to 2018, Starbucks grew from 11 stores with 100 partners to more than 28,000 stores in 77 countries under Mr. Schultz’s leadership. As interim CEO, he will focus on setting an innovation framework while also coaching and onboarding the next CEO. Mr. Schultz will also participate in the search process for the next CEO. He is more than qualified, and under his leadership, shareholders experienced a 21,000% gain from the IPO until he stepped down in 2018. Mr. Schultz is the perfect candidate to lead SBUX during its leadership transition period, and it will only cost SBUX $1 per year as Mr. Schultz will be volunteering his time as interim CEO.
While transitions in management can always cause concern, backfilling the CEO position with Mr. Schultz is a great solution. SBUX has been a huge part of his life, and he has the company running through his veins. I think shareholders can sleep well at night knowing that the founder will be back at the helm and will also personally groom the next leader of this franchise. Starbucks’ financials and valuation look interesting to me here
SBUX’s financials look interesting to me as its growing revenue, gross profit, net income, EPS, and its FCF. Over the past five years, SBUX has increased its revenue by $7.97 billion (35.63%). This has allowed SBUX to increase the amount of gross profit it generates by $1.89 billion (27.67%) and its net income by $1.51 billion (52.29%) over this period. The pandemic was a tough period, but SBUX came out stronger than before. Through this time period, SBUX has increased its EPS by $1.74 (87.44%) and its EBITDA by $1.49 billion (29.95%). Seeking Alpha FCF is one of the most important metrics to measure a company’s profitability, in my opinion, yet not many look at this financial aspect. FCF is important because this is the pile of cash where companies can repay debt, pay a dividend, buy back shares or make acquisitions. Over the past 5 years, SBUX has increased its FCF by 63.29% ($1.73 billion). A company’s ability to generate cash from operations is critical to its future success, and SBUX not only generates billions, it’s growing its FCF by substantial amounts. Seeking Alpha / Steven Fiorillo I created a grid showing SBUX’s valuation at the […]
source Starbucks: Starting To Look Interesting Again Despite Kevin Johnson Stepping Down As CEO
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