Cramer: Will Starbucks Leave Street Jazzed or Jolted?
On Wednesday Starbucks holds its analyst day in New York. "Starbucks only has one of these investor conferences every other year. They are a really big deal," said Jim Cramer.
The Mad Money host expects investors will be listening intently, because at the last analyst day Starbucks made some seriously important forecasts such as expanding into China and getting into the tea business.
"And they delivered on those promises," Cramer added.
So, what should we expect to hear at tomorrow's analyst day?
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-US Business: "I want to hear how the US business is doing, especially as it accounts for 75% of the company's profits," said Cramer. Also Cramer wants to hear about sales in China and the fragile European market. "
- Verismo: "I bet Starbucks also gives us an update on the Verismo, their single-cup coffee brewer that competes with the Keurig—we want to know how the installed base is growing, and how much impact the Verismo will have on earnings over the next two years," Cramer said.
- Cash: "Starbucks could tell us what it's going to do with its cash, including the possibility of a special dividend before the end of the year."
-Evolution Fresh: Starbucks will tell us more about Evolution Fresh, their new juice store concept, and La Boulange, the bakery chain they bought over the summer for $100 million.
-Tea: Of all the things Starbucks will say – perhaps none is more important than its strategy to diversify into tea – a move that's been somewhat controversial.
Starbucks bulls say it's a sign the company is branching out while Starbucks bears argue that it's a sign that the coffee market may be played out. Central to the new strategy is the acquisition of Teavana and investors will likely pore over every word CEO Howard Schutlz says about the acquisition.
"Those are the important questions that the company will likely address," said Cramer.
And the Mad Money host expects that investors will like what they hear.
"I think Starbucks has an incredible story to tell," he said. Here's why:
- The company should be able to grow its earnings per share at a 20% annual clip over the next five years.
- They're putting up new stores all over the globe. "The plan is to open 1,200 new locations next year—that equates to a 12% increase—including in China where Starbucks is expanding very rapidly."
- Starbucks is also renovating about 1,700 of its stores to drive more traffic.
-The company's also making serious investments to improve the efficiency of their stores.
- Starbucks is innovating—they've already got 15% of the market for K-cups.
- The price of coffee has come down more than 30% from its highs earlier this year. "What was once a major headwind is now a major tailwind."
What's the bottom line?
"Starbucks sells for 23.8 times next year's earnings estimates with a 19% long-term growth rate," Cramer said.
That's below the company's five-year average historical multiple of 28.2 times earnings, and it's also a major discount to other high-growth food chains.
"I consider this company a fabulous story to tell, which is why I think the stock is a buy into any fiscal cliff induced weakness going forward, because that's about the only weakness I expect you to get," concluded Cramer.
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