To The Moon

$Starbucks(SBUX)$announced the unexpected departure of its CEO after five years at thelm. Howard Schultz, who is legendary for not only building the Starbucks chain, but also for stepping in to rescue the company in 2008 as it struggled with a dysfunctional culture and a lack of innovation. Schultz will once again help Starbucks, at least on a temporary basis to reinvent itself as it faces new challenges. 

If we look at the investor presentation, the projections are good. 

Growth at scale of 10-12% over the next 2 years are possible and likely the same to happen on longer term. 

The company opened 484 new stores in Q1 2022, ending the period with a record of 34,300+ stores globally . 

Stores in US and China comprises ~60% of the global portfolio. The 55% ROI for new stores in US and 70% in China is a good business and this is what drives long term returns. 

How Worse Can It Get? 

Despite the strong quarterly results, the growing dividend, and the growth potential in the years to come, the stock is struggling right now. SBUX is off roughly 25% from its highest level last year. 

The current geopolitical uncertainties, including the rising COVID cases in China, Unionization will affect the profitability as well as the invasion of Ukraine by Russia are also posing risks for SBUX. Those headwinds come amid a difficult time for the industry in general, given high commodity costs and concerns about consumer spending. 

Value Buy? 

Being conservative, assuming a single digit growth of 5-6% a year, I am predicting that it has an intrinsic value of $105.00 and right now the stock seems to be trading below its intrinsic value and can even be called a bargain buy. Over the long run, with its consistent dividend + growth it seems to be a good long term investment assuming the drop right now not related to anything fundamentally wrong with the company. 

Disclaimer: This is not a buy-sell recommmedation. Materials presented are solely for educational sharing purposes.