Starbucks (SBUX) has been in the news a bunch lately thanks to the antics of its CEO, Howard Schultz.
In September, after SBUX became a hotbed of controversy thanks to its support for “open carry” gun laws, the Starbucks CEO penned an open letter to patrons telling them that guns were no longer welcome in SBUX cafes.
Then, as gridlock descended on Congress, SBUX announced it would give a free coffee to anyone who buys another customer a drink — a kind of symbolic message about bringing people together for a chat at a time of divided government and communication breakdown in Washington.
And most recently, Starbucks made another move into the political arena with a petition to end the government shutdown, with Howard Schultz himself lamenting the “irresponsible and untenable situation” in Washington.
All this comes after its “Create Jobs USA” campaign in 2012.
If you’re a bit tired of SBUX inserting itself into the political arena, you’re not alone. But before you hate too much on Starbucks and its very vocal chief exec … don’t overlook the fact that this stock has been on a tear, and that Howard Schultz is perhaps one of the best businessmen out there.
Starbucks Stock Makes Outperformance a Habit
Starbucks stock is up 45% year-to-date to more than double the S&P 500. Also worth noting is that SBUX is up 69% since January 2012 vs. 36% for the S&P, and up 830% since the spring 2009 lows vs. 150% for the broader market.
Don’t forget the fact that a Starbucks dividend policy was also instituted in 2010, starting at 10 cents a quarter but increased to 21 cents currently.
The performance of Starbucks stock should speak for itself, but it’s worth noting the way that SBUX bounced back as further proof that Howard Schultz is an amazing corporate executive.
Schultz stepped down as CEO in 2000 and Starbucks managed to run pretty well for a while, until it hit a wall in 2006 … drifting from a split-adjusted all-time high of about $40 that year to a low of about $8 a share by 2008 — an ugly 80% drop, peak to trough.
Then Howard Schultz returned as CEO, and it’s been off to the races ever since — with SBUX currently flirting with $80 per share.
That rise was partially thanks to downsizing after overexpansion, but also an innovative marketing push into the long-stagnant instant coffee space with Starbucks Via and a renewed push into packaged food sales — including ice creams and bottled drinks instead of just coffee beans. SBUX also snapped up a variety of companies to strengthen its product lines outside of just java, including Teavana teas and Evolution Fresh juices.
When you consider the mega-growth of Starbucks in its early years under Schultz as well as the amazing second act he has orchestrated since 2008, it’s hard to argue that this CEO is anything but the best.
Investors Should Trust SBUX, Regardless of Politics
Sometimes, political kerfuffle and headline-grabbing news events can easily distract investors from the real issues. And Starbucks hasn’t done itself many favors in the eyes of Wall Street lately, with CEO Howard Schultz insisting on inserting himself into public debates.
I mean, cafes and coffee shops have a long history of being public meeting places … but let’s not fool ourselves into thinking the guy who just made $29 million or so last year is some rabble-rousing populist looking out for the little guy.
The political antics of Howard Schultz are at worst disingenuous ways to get into the news, and at best just another instance of a famous American thinking the rest of us care what he thinks simply because he has a massive bank account.
The company has posted year-over-year revenue increases like clockwork every quarter since Schultz took over in 2008, and earnings have gone from 52 cents a share in fiscal 2009 to a pace of about $2.24 in fiscal 2013. The dividend he instated in 2010 has more than doubled in just a few years, with a low payout ratio and continued upside. And most importantly, SBUX learned its lesson about overreliance on expansion and latte sales, and is now a well-run business with multiple revenue streams.
There is risk that a consumer downturn could hurt Starbucks stock later this year or in 2014, but don’t bet against SBUX based on soft spending alone. Howard Schultz has rebuilt the company with an eye to efficiency and stability, and Starbucks stock shouldn’t suffer another crash-and-burn simply because consumers pull back.
And bigger picture, you certainly shouldn’t bet against Starbucks just because you disagree with its attention-grabbing CEO. Because whatever you think of this CEO’s politics, it’s undeniable that he knows how to run his business.
- Megan McArdle says the exec needs to just make lattes — not peace. (Bloomberg)
- Paul R. La Monica wonders … is Starbucks CEO Howard Schultz the best exec ever? (CNNMoney)
- Of course, SBUX is not a charity … Schultz made a cool $28.9 million last year, up from $16.1 million in 2011. (Seattle Times)
- Will Ashworth offers pros and cons of Starbucks stock. (InvestorPlace.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.