What Else Is Brewing For Starbucks' Stock?

Over the last couple of years, Starbucks Corporation ( SBUX ) has made a number of acquisitions to foray into new segments. The strategy is to diversify its offerings in the relatively saturated American market while leveraging the brand name to expand internationally. In America, Starbucks still sees room for expansion for its traditional coffee stores as the company plans to add 1,500 new stores in the next five years, although 60% of them will be drive-through stores. Besides the coffee stores, let's take a look at what else is brewing up at Starbucks.

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1) Teavana: Tea is another category towards which Starbucks is focusing its attention. The company already had the Tazo brand in its portfolio, but it went ahead and purchased Teavana for $620 million at the end of 2012. Eventually, it plans to operate Teavana stores in the same way that it runs its namesake coffee stores. Presently, the company is going about things slowly, with plans to add 30 stores under the brand by the end of the year.

It's important to note that opening new stores involves a lot of behind-the-scene activities like setting up the supply chain, finding real estate and the right employees, and integrating the company's brand philosophy. All of this takes time and could be a reason for the rate of addition to be relatively slow during the initial phase.

2) Verismo: The Verismo is seen as the biggest threat to Keurig's brewers, although we believe that the latter will continue to be the market leader, given its high degree of compatibility with private labels and third parties. However, this does not undermine the product's importance to Starbucks. With 150,000 Verismo machines sold within the first three months of the launch, the brewer has had a good start.

With a retail price of about $200, the Verismo would have generated sales of $30 million in the previous quarter alone, and the sales of coffee pods would have been additional. As the product's distribution rises and new beverages/flavors are added, we can expect to see its sales rise further.

3) Evolution Juices: Evolution is a $30 million juice company acquired by Starbucks in November 2011. Its bottles are already present in 4,000 of its company-operated stores. Starbucks is currently building a state-of-the-art 'juicery' which is scheduled to open in spring. After the inception of the juicery, Evolution juice bottles will be available in 8,000 of its stores by the end of the year.

We have a $56 price estimate for Starbucks , which is in line with the current market price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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