• GB Davis

Security In Focus: Starbucks ($SBUX)

Today we take a closer look at Starbucks ($SBUX) and Coffee (proxy $JJOFF). We believe that coffee prices (generalizing w/ commodity settlement, Arabica) have (generally) bottomed. We buy into the thesis that Brazil is reducing production in '19. We believe that $JJOFF is a good entry here in the low-9s, offering potential value in the 11-12 range in < 1 year. On $SBUX, we don't like their debt maturity schedule (compare to say $DRI). We believe they have benefited from strong $USD, weakening coffee prices, now having handily out-run the S&P500 over the last 52. Same store sales appear (generalizing) to have been driven by uptick in check price. We believe that a 25% increase in Arabica and associated Coffee commodity prices could negatively impact SBUX EPS by 25-30%. Earnings April 25. We open to buy 65 Nov 15 PUT on $SBUX at $1.81.


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