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Sector: Consumer
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Fundamental View
AS OF 28 May 2025SBUX operates and licenses Starbucks cafe locations. Management has historically targeted lease-adjusted leverage of under 3x and has expressed support for the current, high-BBB ratings profile.
Recent results showed headwinds from lower traffic across the company’s locations in the U.S. and weak results in its second-largest market, China, due to increased competition in the market and cautious consumer behavior in the region.
SBUX navigated a volatile 2024, which included activist investments and an abrupt CEO change. While new CEO Brian Niccol is an experienced restaurant operator, we have reservations about the company’s restaurant reimaging plans.
Business Description
AS OF 28 May 2025- SBUX is a leading coffee roaster and retailer. The company operates and licenses over 40,000 Starbucks locations worldwide where it sells premium coffee beverages as well as other specialty drinks and prepared foods. Slightly over half the locations are company operated (52%) and the rest are licensed to third party operators.
- In F2024, SBUX generated $36.2 bn in revenue and $7.0 bn in adjusted EBITDA. SBUX has three reporting segments: N. America (75% of F2024 revenue), which covers cafes in the U.S. and Canada; International (20%), which includes China, Japan, Latin America, and EMEA; and Channel Development (4.9%) which includes revenue from other branded products sold outside retail locations through partnerships with large consumer companies such as Nestle and PepsiCo.
- On a geographic basis, SBUX's two largest regions are the U.S. (42% of cafes), and China (19%).
Risk & Catalysts
AS OF 28 May 2025In response to the activist attacks, SBUX announced an unexpected change in CEO and hired Brian Niccol, a veteran of the quick service restaurant industry with a successful track record at Taco Bell and Chipotle.
Lower discretionary spending in the U.S. could continue to weigh on SBUX’s sales outlook. We view its premium-priced beverage offerings as having significant risk of consumer trade down into more value-oriented options.
Investments behind the company’s new store imaging have increased costs and weighed on margins, in large part due to significant investments in labor.
Key Metric
AS OF 28 May 2025| $ mn | Y21 | Y22 | Y23 | Y24 | LTM 2Q25 |
|---|---|---|---|---|---|
| Revenue | 29,061 | 32,250 | 35,976 | 36,176 | 36,347 |
| EBITDA | 6,775 | 6,385 | 7,252 | 7,001 | 6,340 |
| EBITDA Margin | 23.3% | 19.8% | 20.2% | 19.4% | 17.4% |
| EBITDA-Capex to Revenue | 18.3% | 14.1% | 13.7% | 11.7% | 9.7% |
| Total Debt | 14,616 | 15,044 | 15,400 | 15,568 | 15,572 |
| Net Debt | 8,160 | 12,226 | 11,848 | 12,282 | 12,900 |
| Net Leverage | 1.2x | 1.9x | 1.6x | 1.8x | 2.0x |
| Lease Adjusted Debt to EBITDAR | 2.9x | 3.1x | 2.8x | 3.0x | 3.2x |
| EV / EBITDA | 20.4x | 17.1x | 16.1x | 17.6x | 19.6x |
CreditSight View Comment
AS OF 06 May 2025SBUX is in the early phases of an operational turnaround plan intent on reigniting foot traffic by improving the in-store experience. The “Back to Starbucks” program has come at the expense of margin due to heavy investments in labor. While the plan is ultimately to increase transactions and tickets due to improved experiences, we are skeptical that the company will be able to recoup the margin. Also, the strategy comes at a time when economic uncertainty could weigh on discretionary purchases. Also, recent results have weighed on the company’s share price, which could test the patience of equity investors and possibly draw activist attention to the name again. We recommend avoiding this risks in favor of McDonald’s bonds, despite ~20 bp of incremental spreads at SBUX.
Recommendation Reviewed: May 06, 2025
Recommendation Changed: May 01, 2024
Who We Recommend
Pfizer
Republic of Indonesia
Republic of Korea
How may we help you?
Search topics about wealth insights and investments.Amazon.com
- Sector: ConsumerTechnology Media and Telecommunications
- Sub Sector: Retail/GrocersTechnology
- Region: US
- Bond: AMZN 4.65 29
- Indicative Yield-to-Maturity (YTM): 4.298%
- Credit Rating : A1/AA/AA-
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Fundamental View
AS OF 25 Feb 2025- We continue to have confidence in CEO Andy Jassy and the company’s long-term business for both AWS and Stores. The recent operating trends reinforce our views particularly the margin improvement. We continue to believe that Amazon is an underappreciated winner in Generative AI given the breadth of its cloud business and offerings including custom silicon and its platform Bedrock.
- Gross leverage declined to 0.4x and 0.9x on a lease-adjusted basis. While Amazon is increasing its capex spend (along with the other hyperscalers), we are encouraged by its debt reduction and zero shareholder returns. Also, Amazon’s equity cushion is ~$2.2 tn. There are risks related to the FTC suit although we expect those to be addressed by behavioral remedies, and we view a breakup as unlikely.
Business Description
AS OF 25 Feb 2025- Amazon is an e-commerce company which sells a wide range of its own products and those of 3rd party sellers. Amazon offers fulfillment services for 3rd party sellers (FBA) and sells cloud computing services (AWS). In 4Q24, 3rd party units were 62% of total paid units, and FBA units are a majority of 3rd party units.
- In LTM 4Q24, NA segment was 61% of sales, International was 22% of sales, and AWS was 17% of sales.
- Amazon disclosed it surpassed 200 mn Prime members in April 2021. The annual membership was increased in February 2022 from $119 to $139 in the US, although fees vary by country. In mid-2019, Amazon Prime began to transition from 2-day to 1-day shipping. Amazon Prime also offers Prime Video, streaming music, and other benefits.
- In 2006, Amazon launched AWS which remains the leader in cloud computing (IaaS/PaaS). Amazon sells its own devices (e-reader, smart speaker, streaming media player, etc.).
Risk & Catalysts
AS OF 25 Feb 2025- We think Amazon has moderate event risk given its large size (~$2.2 tn market cap).
- While Amazon is increasing its CapEx spend, we are encouraged by the $14 bn reduction in lease-adjusted debt from year-end 2022 through year-end 2024.
- Amazon continues to face regulatory scrutiny. In September 2023, the FTC and 17 states filed a lawsuit against Amazon and accused the company of (1) punishing sellers for offering lower prices elsewhere and (2) making Prime eligibility conditional on usage of fulfillment services. The biggest risk would be a breakup, although we view that as unlikely.
- Amazon’s $14 bn acquisition of Whole Foods has shown its proclivity for large M&A, although the regulatory environment could make large deals challenging.
Key Metric
AS OF 25 Feb 2025| $ mn | 2020 | 2021 | 2022 | 2023 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue YoY % | 37.6% | 21.7% | 9.4% | 11.8% | 11.0% |
| EBITDA | 57,284 | 71,994 | 74,593 | 110,305 | 144,162 |
| EBITDA Margin | 14.8% | 15.3% | 14.5% | 19.2% | 22.6% |
| CapEx % of Sales | 12.1% | 13.3% | 11.5% | 8.5% | 12.3% |
| Sh. Ret. % of CFO-CapEx | 0% | 0% | (49%) | 0% | 0% |
| Net Debt | (50,497) | (44,771) | 7,316 | (19,598) | (43,202) |
| Gross Leverage | 0.6x | 0.7x | 1.0x | 0.6x | 0.4x |
| EV / EBITDA | 28.3x | 23.3x | 11.7x | 14.4x | 16.1x |
CreditSight View Comment
AS OF 02 May 2025We continue to have confidence in CEO Andy Jassy and the company’s long-term business for both AWS and Stores. AWS is now a $117 bn run-rate business and delivered record operating margin of 39.5% in 1Q25. We continue to believe that Amazon will be a winner in Generative AI given the breadth of its cloud business and offerings including custom silicon (Trainium, Inferentia) and its platform Amazon Bedrock. We estimate leverage was roughly flat at 0.4x gross and 0.9x lease-adjusted gross. While Amazon’s capex has been ramping, along with other hyperscalers, we are encouraged by its debt reduction over the past few years and zero shareholder returns. Also, Amazon’s market cap is $2.1 tn. There are risks related to the FTC suit although we view a breakup as unlikely.
Recommendation Reviewed: May 02, 2025
Recommendation Changed: May 01, 2024
Who We Recommend
Starbucks
Pfizer
Republic of Indonesia