We believe that there are other stocks that are currently better valued than Starbucks’ stock (NASDAQ: SBUX). SBUX’s current price-to-operating income ratio (P/EBIT) of 33.5x is higher than levels of 22.4x for Pioneer Natural Resources (NYSE: PXD), 9.8x for FedEx (NYSE: FDX), 9.5x for Regeneron Pharmaceuticals (NASDAQ: REGN), 9.4x for Northrop Grumman (NYSE: NOC), and 8.2x for Southern Copper (NYSE: SCCO). These stocks have a lower valuation (P/EBIT) compared to Starbucks, while most of them have seen better revenue and operating income growth. This disconnect between valuation and performance could mean that you are better off buying PXD, FDX, REGN, NOC, and SCCO vs. SBUX stock. More specifically, we arrive at our conclusion by looking at historical trends in revenues, operating income, and P/EBIT for these companies. Our dashboard – Better Bet Than SBUX Stock: Pay Less To Get More From Stocks PXD, FDX, REGN, NOC, SCCO – has more details – parts of which are summarized below.
1. Revenue Growth
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Starbucks revenues, grew at an average rate of 2.1% over the last three years, as compared to average revenue growth of 14% for Pioneer Natural Resources, 9% for FedEx, 15% for Regeneron Pharmaceuticals, 12% for Northrop Grumman, and 6.3% for Southern Copper. If we look at the revenue growth over the last twelve month period, Starbucks’ revenue growth of 13% compares favorably with the average growth of 5.5% for Northrop Grumman, but it is lower compared to the average growth of 63% growth of Pioneer Natural Resources, 21% of FedEx, 71% of Regeneron Pharmaceuticals, and 40% of Southern Copper.
2. Operating Income Growth
The three-year average operating income growth for Starbucks stands at -17% compared to 23% for Pioneer Natural Resources, 79% for FedEx, 24% for Regeneron Pharmaceuticals, 2.4% for Northrop Grumman, and 6.5% for Southern Copper. If we look at operating margin growth for the last twelve months, Starbucks’ operating margin growth of 89% is lower compared to 534% for Pioneer Natural Resources, 188% for FedEx, 142% for Regeneron Pharmaceuticals, 91% for Northrop Grumman, and 109% for Southern Copper.
The Net of It All
As we can see over the last three years, Pioneer Natural Resources, FedEx, Regeneron Pharmaceuticals, Northrop Grumman, and Southern Copper have higher revenue growth and operating income growth compared to Starbucks. Despite better profit and revenue growth in the last three years, these companies have a comparatively lower P/EBIT. Even if we were to look at the last twelve months’ operating income growth a year ago, Pioneer Natural Resources, FedEx, Regeneron Pharmaceuticals, Northrop Grumman, and Southern Copper fare better compared to Starbucks, and even then Starbucks was trading at a higher multiple.
Starbucks’ persistent underperformance in revenue and operating income growth, compared to the other five companies, reinforces our conclusion that the stock is expensive compared to them, and we think this gap in valuation will eventually narrow over time to favor the group of more attractively priced names. As such, we believe that Pioneer Natural Resources, FedEx, Regeneron Pharmaceuticals, Northrop Grumman, and Southern Copper are currently better buying opportunities compared to Starbucks.
Also, Starbucks Peer Comparisons summarizes how the company fares against peers on metrics that matter.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||-1%||23%||-100%|
|Trefis MS Portfolio Return||-1%||43%||284%|
 Month-to-date and year-to-date as of 12/14/2021
 Cumulative total returns since 2017