Starbucks SBUX
Starbucks at 22x forward P/E vs. 26x historical average is a rare chance to own a category-killer coffee brand — fixable U.S. SSS and a $14bn buyback reverting the multiple doubles the stock.
Thesis
Pershing Square pitches Starbucks (code-named 'Doppio') as a rare chance to own a category-killing global brand at a cyclical discount, arguing that shares at 22x forward P/E (vs. a 27x 5-year average) have been over-punished for a temporary U.S. same-store-sales slowdown that new CEO Kevin Johnson's remedial actions — loyalty revamp, SG&A cuts, Nestle CPG divestiture, and a ~$14bn two-year buyback — will reverse. The deck leans on best-in-class unit economics (66% U.S. and 86% China pretax ROIC, 1.2-1.5 year payback), 8% historical unit CAGR with China tripling to 17% of earnings by 2022, and coffee-M&A precedents averaging 16x EBITDA vs. SBUX's 13.3x. Base case targets $97/share (+75%) and upside $122 (+119%) by 9/30/21, implying a 20-30% three-year IRR with limited downside.
SCQA
Starbucks is the dominant global specialty coffee retailer with ~29,000 stores, $32bn systemwide sales, 46% global specialist-coffee share (15x the #2 player), and a decade of 26% annualized TSR that doubled the S&P 500.
Shares are flat over three years and trade at 22x forward P/E (below the 26x 5-year average) because U.S. SSS decelerated from 5% historical to 2%, long-term growth targets were cut, and leadership is transitioning — all fixable issues.
Back Kevin Johnson's plan: execute the ~$14bn two-year buyback, concentrate capital on owned U.S. and China store growth, revamp the loyalty program, and compound the Nestle-CPG proceeds with SG&A discipline.
If SSS and the multiple revert toward historical averages, shares reach $97 base (+75%) and $122 upside (+119%) by 9/30/21, implying a 20-30% three-year IRR even before dividends.
The three reasons
- 1
SBUX trades at 22x forward P/E vs. a 26x historical average despite an intact unit-economics moat
- 2
China (31% unit CAGR since 2010) lifts earnings mix from 13% to 17% by 2022 at 15% CAGR
- 3
~$14bn two-year buyback (~18% of market cap) plus 5% long-run SSS compounds EPS at mid-teens
Primary demands
- Execute the announced ~$14bn share buyback over the next two years (~18% of market cap)
- Concentrate capital on owned-store growth in the U.S. and especially China
- Continue core-business focus via Teavana closures, Tazo divestiture, and the Nestle CPG license
- Support management's remedial actions on U.S. SSS (loyalty program revamp, SG&A discipline)
KPIs cited
Pattern membership
Precedents cited
- Coffee M&A wave averaging 16x EV/EBITDA on $100bn+ of deals since 2012 (JAB roll-up of Peet's, Keurig, Panera, Dr Pepper Snapple)
- Nestle-Starbucks CPG licensing transaction at 15x EBITDA
Composition what's on the 43 slides
Slide gallery ·
Notes
Code-named 'Doppio' on the cover — Pershing's internal nickname for the SBUX investment — with no named human signatory, so author_name is null per guidance. Atypical Pershing deck: this is a friendly long thesis endorsing management rather than an adversarial campaign. PS already owned 15.2M shares at ~$51 avg cost, broadly supports CEO Kevin Johnson, and makes no board demands — no villain, no CEO-quote-contradiction device. Stake is disclosed as a share count (15.2M of ~1,402M diluted ≈ 1.1%) rather than explicitly as a percentage, so stake_disclosed_pct left null. Valuation is single-multiple P/E reversion anchored on coffee-M&A precedents; no sum-of-parts.