Why We Agree with Ackman on Starbucks
The wide-moat firm remains one of our top ideas in restaurants.
By and large, our positive long-term outlook on wide-moat
We've also long held the belief that Starbucks' CPG and China assets were underappreciated, points that Ackman laid out. Luckin Coffee and other delivery-first, value-priced competitors have been disruptive to Starbucks China, but we still identify a compelling long-term story there (backed by strong consumer demand and favorable unit economics). Starbucks has been behind the delivery curve, but we believe the nationwide rollout of delivery via Alibaba's Ele.me in 2019 will help bring China comps back to the low/midsingle digits. We also believe the CPG partnership with Nestle can more rapidly unlock long-term value due to Nestle's global distribution network and single-serve platform.
We're not planning changes to our $64 fair values estimate, and while we expect stock price volatility as Starbucks rolls out strategic initiatives and introduces 2019 guidance, we believe investors are effectively being paid to wait with a 2018-20 cash return target of $25 billion.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.