Let's explore why consider going long on SBUX and short on ARMK.
Fundamental Strengths of Starbucks (SBUX)
1. Operational Efficiency (Profit Margin: 10.80%)
Starbucks has a profit margin of 10.80% compared to Aramark's 3.00%. This suggests that Starbucks is more efficient at converting sales into actual profits, which is a positive sign for potential stock appreciation.
2. Dividend Attraction (Dividend Yield: 2.16%)
Starbucks offers a dividend yield of 2.16%, compared to Aramark's 1.15%. This extra incentive could attract income-focused investors and offer some downside protection.
3. Market Leadership (Analyst Recommendation: 2.50)
Starbucks has an analyst recommendation score of 2.50, compared to Aramark's 2.30. Although both are generally in the "Buy" category, Starbucks edges out with a slightly more favorable recommendation.
Risks Associated with Aramark (ARMK)
1. High Leverage (Debt/Eq: 2.15)
Aramark's debt-to-equity ratio is 2.15, suggesting the company has a higher reliance on debt to finance its operations, making it potentially more vulnerable in economic downturns.
2. Vulnerability to Sector Shifts (Operational Margin: 4.30%)
Aramark's operational margin of 4.30% could be a point of vulnerability if there are shifts away from institutional food services, its main business sector.
3. Less Favorable Analyst Recommendations (Analyst Recommendation: 2.30)
Aramark has an analyst recommendation score of 2.30, which is slightly less favorable compared to Starbucks' 2.50. This could indicate weaker investor sentiment, making it a candidate for a short position.
Starbucks China data for consideration
Strong Growth in China: Starbucks reported a 46% year-over-year increase in same-store sales in China for fiscal Q3 2023. This is significant because it shows the company's resiliency and adaptability in a crucial market.
Continued Expansion: Starbucks has consistently expanded its store count in China from 3,924 in fiscal Q3 2019 to 6,480 in fiscal Q3 2023. Despite the challenges due to COVID-19, the company never slowed down its expansion, indicating a strong long-term strategy.
Robust Operating Income: Starbucks’ operating income for its international segment, which includes China, was $375 million, up a remarkable 177% year-over-year. This shows not just a recovery, but a roaring rebound in profits.
Management’s Optimism: Starbucks aims to have 45,000 locations by the end of fiscal 2025 and 55,000 by the end of fiscal 2030, with the expectation that EPS could grow 15-20% annually. This aligns with the initial analysis of the company's growth potential and financial stability.
Questionable EPS Growth: It's worth noting that while revenues have been growing, Starbucks' EPS has remained largely flat. However, this has been attributed to underperformance in China, which is now showing signs of significant recovery.
Decision:
Long on 1*SBUX
Short on 3*ARMK
Fundamental Strengths of Starbucks (SBUX)
1. Operational Efficiency (Profit Margin: 10.80%)
Starbucks has a profit margin of 10.80% compared to Aramark's 3.00%. This suggests that Starbucks is more efficient at converting sales into actual profits, which is a positive sign for potential stock appreciation.
2. Dividend Attraction (Dividend Yield: 2.16%)
Starbucks offers a dividend yield of 2.16%, compared to Aramark's 1.15%. This extra incentive could attract income-focused investors and offer some downside protection.
3. Market Leadership (Analyst Recommendation: 2.50)
Starbucks has an analyst recommendation score of 2.50, compared to Aramark's 2.30. Although both are generally in the "Buy" category, Starbucks edges out with a slightly more favorable recommendation.
Risks Associated with Aramark (ARMK)
1. High Leverage (Debt/Eq: 2.15)
Aramark's debt-to-equity ratio is 2.15, suggesting the company has a higher reliance on debt to finance its operations, making it potentially more vulnerable in economic downturns.
2. Vulnerability to Sector Shifts (Operational Margin: 4.30%)
Aramark's operational margin of 4.30% could be a point of vulnerability if there are shifts away from institutional food services, its main business sector.
3. Less Favorable Analyst Recommendations (Analyst Recommendation: 2.30)
Aramark has an analyst recommendation score of 2.30, which is slightly less favorable compared to Starbucks' 2.50. This could indicate weaker investor sentiment, making it a candidate for a short position.
Starbucks China data for consideration
Strong Growth in China: Starbucks reported a 46% year-over-year increase in same-store sales in China for fiscal Q3 2023. This is significant because it shows the company's resiliency and adaptability in a crucial market.
Continued Expansion: Starbucks has consistently expanded its store count in China from 3,924 in fiscal Q3 2019 to 6,480 in fiscal Q3 2023. Despite the challenges due to COVID-19, the company never slowed down its expansion, indicating a strong long-term strategy.
Robust Operating Income: Starbucks’ operating income for its international segment, which includes China, was $375 million, up a remarkable 177% year-over-year. This shows not just a recovery, but a roaring rebound in profits.
Management’s Optimism: Starbucks aims to have 45,000 locations by the end of fiscal 2025 and 55,000 by the end of fiscal 2030, with the expectation that EPS could grow 15-20% annually. This aligns with the initial analysis of the company's growth potential and financial stability.
Questionable EPS Growth: It's worth noting that while revenues have been growing, Starbucks' EPS has remained largely flat. However, this has been attributed to underperformance in China, which is now showing signs of significant recovery.
Decision:
Long on 1*SBUX
Short on 3*ARMK