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AAA  Jul. 23, 2013
Whole latte love
Money and Markets
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Starbucks consistently draws its share of java junkies, but investors are hooked, too. The coffee chain’s shares are up 30 percent this year and hit an all-time-high of $69.90 last week.

But is the stock too hot to touch now?

“I would wait for a pullback, or a wider margin of safety,” says R.J. Hottovy, a financial analyst at Morningstar. The stock is trading just below $70, which is his estimation of a fair value for the stock.

Even so, with the market at record highs, Starbucks could climb further. Starbucks stands to benefit from an improving economy and housing market, which makes consumers more likely to spend on items like a 20 oz. cup of coffee.

The chain is also making moves to grow beyond its coffee business. Last year, Starbucks introduced a single-serve coffee machine and acquired tea shops, bakery chains and a bottled juice company. The plan: To operate the chains as stand-alone businesses, but also to expand the food options in Starbuck locations. The strategy recognizes the increased competition for coffee drinkers from rivals such as McDonald’s and Dunkin’ Brands.

Starbucks’ real growth opportunity is overseas. Only a fraction of its revenue comes from Asia, where most of the world’s population resides. Hottovy says roughly three-fourths of revenue now comes from the Americas, 9 percent from Europe and 5 percent from Asia.

Associated Press
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