Morningstar

Why We Agree with Ackman on Starbucks

The wide-moat firm remains one of our top ideas in restaurants.

Securities In This Article
Starbucks Corp
(SBUX)

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.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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