Frank Curzio
Founder & CEO of Curzio Research, Wall Street Unplugged Host
Starbucks is a best-in-class operator in a higher-for-longer environment that will squeeze consumers and send them to the winners. April CPI rose 3.8%, hotter than expected, costing the Fed its best argument for a cut. CEO Brian Niccol delivered the first earnings beat in five quarters and a second straight quarter of traffic growth, the hardest thing to pull off when wallets are tight. x.com x.comÂ
Starbucks is turning around, with good comparable sales and a return to growth after trading sideways for nearly six years. A weekly and monthly breakout above $105 needs to hold and start trending, with a likely multi-day move of up to about 20%. x.com x.comÂ
Starbucks' turnaround is underway now that Brian Niccol has firmed the foundation and has room to grow the business. It had to shrink to grow, fixing too many stores, too many concepts, no in-store vibe and broken processes. This will not be a Chipotle-level outcome, but with Niccol at the helm it can be a consistent compounder. x.comÂ
Starbucks still carries a premium valuation even as coffee competition intensifies nationwide, so betting against it is reasonable. Coffee is habitual and generates good cash returns, but barriers to entry are low: deep-pocketed, PE-backed 7 Brew and regional chains like Summermoon and Foxtail are scaling aggressively. @CreditCapi's short case adds that store closures inflated Starbucks' same-store sales growth by 483 bps and that competitor openings cut its traffic 8-10%. x.comÂ
Dutch Bros has gotten cheaper after a long slide, now under 30x forward EPS with 35% EPS growth and 3.1x current-year sales with revenue growth around 30%. That is roughly Starbucks' price-to-sales despite 30% versus 3% revenue growth, while Cava trades at 4x sales and 69x forward EPS with 27% revenue growth and the same 35% EPS growth. Same-store sales growth remains far ahead of nearly every other company. x.com x.com x.comÂ
Target's turnaround continues with a solid beat and raise. Same-store sales rose 3.8% and transactions 3.6%, with higher gross and operating margins. Guidance moved higher, beating a high bar, with a 120 bp increase in operating margin. x.comÂ
Starbucks has been too much of a drag on performance for anyone who bought within roughly the last 13 years, which helps explain why fund managers barely own it. The lack of a traffic rebound is disappointing; the expected bounce from workers returning to offices never came. x.com x.comÂ
Chipotle's comparable sales trend is worrying heading into earnings, and the chart is ugly. It is trying to win back customers by raising prices more slowly than inflation. Any sign of a real comeback in traffic would be a huge win. x.comÂ
Safe-haven stocks such as Altria, Philip Morris, Starbucks, Cboe, CAVA and Costco deserve attention in this market; they are on fire this week. Walmart, Coca-Cola, Apollo, Procter & Gamble and Visa are also showing strong setups. x.comÂ
Starbucks looks expensive on an estimate-based earnings screen: 29x next year's projected earnings versus 18x for restaurant chains implies a $49.43-$62.91 fair range against $91.43. That forecast is 80% above trailing earnings; this is levels-only work based on reported estimates, not fundamental diligence. x.comÂ
Mastercard and Visa do best in an inflationary environment with growth holding up, because they are toll booths on nominal spending. So far everything in the consumer's basket has gone up except rent, one of the few items not paid by credit card, and Mastercard's expected low-teens topline growth over the next few years shows the tailwinds. A recession would offset some of the higher gross dollar volume, and deflation would have the opposite effect. x.com x.comÂ
