MCD - Starbucks: McDonald's Store Growth Plans Are Bullish For Starbucks (Rating Upgrade)
2024-04-29 08:46:04 ET
Summary
- McDonald's announced a new target to grow its restaurant count at a CAGR of 4-5% until 2027 at the beginning of December 2023.
- This is bullish for SBUX because it shows that mature restaurant peers can keep growing their restaurant count at a fast pace.
- After updating my store growth outlook, I upgrade my rating for SBUX.
- SBUX will report results for Q2 '24 on April 30, 2024, after the market closes.
- Major things to look out for in the report will be (1) traffic, especially in North America, and (2) margin improvements.
Introduction
My first article on Starbucks ( SBUX ), called " Starbucks: Some Reasons To Rethink Your Position ", was published on December 1, 2023. Back then, I assigned a "sell" rating to SBUX because of three main reasons:
- SBUX store growth targets seemed overly optimistic, especially compared to the store growth over the past decade we have seen at McDonald's ( MCD ), a peer at a more mature stage than SBUX.
- SBUX customers who were lost during the pandemic were not coming back. Using the traffic metrics SBUX is giving us, traffic at existing stores in 2014 was 7% lower in 2023. This indicates that the brand is not as strong as people may think.
- Using reasonable growth expectations, SBUX looked overvalued and I estimated the fair value per share somewhere in the $75 per share range.