Is Starbucks a Good Portfolio Play?
With shares of Starbucks (NASDAQ:SBUX) trading around $71, is SBUX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Starbucks is a roaster, marketer, and retailer of coffee operating worldwide. The company purchases and roasts the coffees it sells along with handcrafted tea and other beverages, as well as a variety of fresh food items through its stores. Starbucks sells a variety of coffee and tea products and licenses its trademarks through other channels like stores and national food service accounts. In addition to its flagship Starbucks brand, the company’s portfolio features Tazo Tea, Seattle’s Best Coffee, Starbucks VIA Ready Brew, Starbucks Refreshers beverages, and the Verismo System by Starbucks. Starbucks has developed a solid reputation over the past several years, which has generated a lot of buzz for its products.
Starbucks does a lot of things right, but it isn’t the best at recycling — that surprises a lot of onlookers, considering the coffee chain sells 4 billion disposable cups a year. In 2008, the company announced that by 2015, it would offer recycling at all company-operated branches, but Bloomberg reported on Monday that Starbucks said in its 2013 Global Responsibility Report last week that it wasn’t going to meet its recycling goals in 2015, if ever. Five years into its program, Starbucks has only been able to implement customer recycling at 39 percent of its company-operated stores. Starbucks has gold-plated recycling bins in many of its stores, but it hasn’t been adamant about the expansion and use of them, because it doesn’t wholly believe the cups can be economically recycled. Thus, the profit motive simply is not there.
Bloomberg reports that the coffee chain’s cups are lined with plastic to keep them from leaking, so in order to recycle, that plastic would need to be removed before the cups can be transformed into new paper. Even though technology exists to remove that lining, recyclers are typically only willing to enlist that machinery if they are supplied with enough used cups to justify running the process on a regular basis. As it turns out, Starbucks customers actually don’t throw away enough cups to make the recycling efforts worth it for the chain. In 2010, according to Bloomberg. Starbucks ran a pilot program in which it collected three tons of cups from 170 Toronto-area stores and sent them for recycling in the U.S., but the volume actually only amounted to a sliver of a percentage of the 51.5 million tons of recyclable paper and cardboard recovered in the U.S. that year.