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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, August 02, 2006

Starbucks in the Soup

Starbucks (SBUX) is falling victime to my "good hits and bad misses" category that most telecom equipment stocks and high multiple stocks fall into now. The stock closed up 1% at $33.40 on the day, but now is trading at $30.20 after its earnings (on 2007 s-s-s guidance really).

Now it has to worry about its chart. If this $30+ handle doesn't hold, then it runs the risk that it could fall back into an old $25.50 to $29.75 trading band.

It posted $0.18 EPS vs $0.17e and revenues of $2 Billion, a tad above estimates. It is buying back 25 million more shares in addition to the 3.4 million still outstanding.

Here is the guidance for 2006:

* New store openings target raised from 1,800 to at least 2,000 net new stores on a global basis
* Fiscal Q4 earnings per share target maintained at $0.16 - $0.17 per share
* Fiscal 2006 earnings per share target maintained at $0.71 - $0.72, excluding $0.01 related to fiscal Q3 one-time tax benefit

Introducing Fiscal 2007 guidance:

* New store openings targeted at approximately 2,400 net new stores on a global basis in fiscal 2007, up from 2,000 new stores in fiscal 2006
* Total net revenue growth target set at approximately 20 percent; comparable store sales growth of three to seven percent

* Fiscal 2007 earnings per share target range set at $0.87-$0.89, reflecting growth of approximately 20 to 25 percent over fiscal 2006, excluding FY 2006 one-time tax benefit of $0.01

It isn't that the earnings are bad so much, but there is no real upside projection. That forward same store sales (s-s-s) of only 3% to 7% growth is also far below its average. Maybe it isn't expecting much in gains from its new food initiatives. That is when a P/E of 48 starts to hit your stock.

Jon C. Ogg
August 2, 2006

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