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New Economy, Leadership, Entrepreneurship, Management, Global Business

Starbucks Overseas

Posted by iBlog on May 13, 2008

Starbucks (SBUX) is a startling example of how fast a Wall Street “angel” can fall. But based in part on the return of founder Howard Schultz as CEO and his aggressive plans to resuscitate the No.1 specialty coffee company—with more than 15,000 stores worldwide—some smart market watchers believe this fallen star will rise again. Its shares soared as high as 40 in 2006, up from 7 in 2001, when most stocks were crashing.

But fierce competition hit Starbucks: Same-store sales weakened, and margins narrowed as commodity prices jumped. After the departure of CEO Jim Donald in January, Schultz’s return gave investors hope for a turnaround. Schultz has laid out bold plans to boost traffic with new products, such as high-protein, low-calorie drinks and its highly promoted Pike Place blend. Also, he’ll cut back U.S. expansion while adding stores—1,050 in 2009, 1,150 in 2010, and 1,300 in 2011—in faster-growing foreign markets. Retail sales in fiscal 2008 should rise 10% in the U.S. and 32% overseas, figures Mark Basham of Standard & Poor’s (MHP), who rates Starbucks, now at 15.95, a strong buy, with a year’s target of 27. He sees profits of 85 cents a share in 2008 and $1 in 2009. Matthew DiFrisco of Oppenheimer (OPPEX), who rates the stock outperform, favors Schultz’s strategy of soft-pedaling growth in mature markets to invest in product innovation and overseas expansion, “much as McDonald’s (MCD) did in the early 2000s.”

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

A-Power: Clean Energy in China

A-Power Energy Generation Systems (APWR) is a “green” Chinese company whose Nasdaq-traded stock has been on a tear. Shares of China’s largest provider of power co-generation systems have climbed to 17.32 a share, up from 6.15 a year ago. A-Power is also in wind energy. It is building a facility to assemble wind turbines based on technology licensed from European partners. “We visited two of A-Power’s generation installations in Shenyang, China, along with the wind turbine site,” says Mark Tobin of Roth Capital Partners. They confirmed, he says, the “value proposition” for the power plants and its wind energy business. The stock is undervalued, says Tobin, based on estimated earnings of $1.09 a share in 2008 and $1.39 in 2009. Moreover, A-Power has $100 million in cash and no debt. Another bull is Brian Yerger of Jesup & Lamont, who sees the stock at 25 in a year.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Can RadioShack Raise the Volume?

Consumer electronics retailer RadioShack (RSH) is in an unenviable position: Only 1 of 17 analysts who track it has a buy rating. Weak sales and Best Buy’s (BBY) dominance in the business have sunk its shares to 14.46, down from 35 last June. But some pros, who sniff a recovery in the works, say the time is ripe to buy. George Putnam III, editor of The Turnaround Letter, says a revival initiated by new CEO Julian Day is already well established, but the stock is still near its lows. RadioShack has many of the features Putnam considers key for a turnaround play: a widely recognized brand name and strong management with a well thought-out strategy to improve operating results. And the stock is cheap, he adds, trading at 9.3 times 2008 estimated profit of $1.60 a share. The lone bull among the analysts, David Strasser of Banc of America (BAC) Securities, has a price target of 20.

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