Is Starbucks’ Stock Still a Buy After Acquiring Teavana?
Starbucks suffered its worst sell off of the year at the end of July when it posted third-quarter fiscal year 2012 results (calendar year is October-September) that came in below expectations and flat quarter over quarter earnings guidance for the fourth-quarter. The stock dropped 17.63 percent by August 2, and hasn’t broken $52 per share since.
Fourth-quarter earnings came pretty much exactly in line with estimates at $0.46 per share, a 24 percent increase year over year. Comparable-store sales rose 7 percent, revenue grew 11 percent, and the board raised the quarterly dividend by 24 percent, for a forward annual dividend rate of $0.84, or 1.7 percent.
On November 14, Starbucks announced its agreement to buy Teavana Holdings, Inc. (NYSE:TEA) for $620 million in cash, or $15.50 per share. Before the acquisition was announced, shares of Teavana had lost over 50 percent of their value year over year, and were trading just at just over $10 per share. The press release states that “Just as Starbucks pioneered a new retail experience for coffee and espresso, the company’s acquisition of Teavana provides the opportunity to do the same with the rapidly growing $40 billion global tea category.”
Many investors found the decision questionable, especially given the fact that Starbucks already owns the Tazo tea brand. However, the day after announcing the acquisition, Starbucks placated investors by announcing the repurchase of 25 million shares, adding to the 12.1 million approved for repurchase at the end of FY 2012.