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Tuesday, September 19, 2006

Starbuck’s Slow Roast (SBUX)

According to Reuters, the chairman of Starbuck’s says the global coffee chain’s revenue is not tied to larger business trends.” I don't see anything that indicates in the near future that Starbuck’s is going to be susceptible to the economy”. Starbuck’s must be a company unlike almost any other. The only problem management would admit to was the long lines this summer for mixed fruit drinks. These take more time to make, and apparently some customers left when the lines got too long.

Waiting hurts business at Starbuck’s, but an economic downturn won’t. The company’s logic is that upscale customers will continue to buy expensive coffee even if overall conditions head south.

It may be that Wall St. thinks that Starbuck’s has gotten a bit big for its britches. The stock currently trades at $33.64, which is down from its 52-week high of $39.88. About a month ago, Thomas Weisel downgraded the stock from “outperform” to “peer perform”.In July, Deutsche Securities initiated Starbuck’s as a “hold”. The same month UBS downgraded the stock from “buy” to “neutral”.

The slowing of growth in same-store sales at Starbuck’s has brought out a number of skeptics that were high on the company before. Now, the management is asking investors to believe that long lines are a more powerful deterrent to buying coffee that a bad economy would be.

Even the rich feel the pinch now and then.

Douglas A. McIntyre can be reached at He does not own stocks in companies that he writes about.

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