Starbucks Corporation (SBUX): This Earnings Report Leaves 1 Question Unanswered

What is even more confusing is the company expects to deliver 15% to 20% EPS growth. On the one hand, the company is going to open a lot of new stores, and have strong comps. On the other hand, their revenues won’t reflect this same strength. Yet in the end, the company hopes to deliver good EPS growth?

Clues To The Future And What Investors Should Do
Starbucks clearly sees some pricing pressure in the upcoming year. There just isn’t a way that 22% more stores and mid-single digit comp. growth equals 10% to 13% revenue growth, without some pricing pressure. The company seems to understand that their customers may choose cheaper options given the competitive environment.

The good news for Starbucks investors is, the company still looks like one of the best values in the industry, but the competition is getting tougher. For those who believed Green Mountain’s business would die out when their K-Cup patents expired, the 4.6 million new brewers, and better earnings just reported seem to argue otherwise. Green Mountain trades for a forward P/E ratio that is over 35% cheaper than Starbucks, yet both companies are expected to see about the same EPS growth in the next few years.

McDonald’s is a harder comparison with 8.7% EPS growth and a 3.25% dividend, compared to over 18% growth and a 1.5% dividend at Starbucks. If any stock can challenge the growth and income combination at Starbucks, it might be Dunkin Brands. Dunkin is expected to grow earnings at 15.4%, and pays an over 2% yield. The big difference is, Dunkin is nearly 100% franchised and has much higher margins than Starbucks. In the end, the industry is highly competitive, and Starbucks growth plans seem to leave investors a little confused. However, if the coffee king can deliver on 15% to 20% EPS growth as promised, 2013 should be another good year for investors.

The article This Earnings Report Leaves 1 Question Unanswered originally appeared on Fool.com and is written by Chad Henage.

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