Peet's has a current store base of 144 units, mostly in California and the Western United States. The company has a market capitalization of $360 million and the stock is trading around $26. I estimate that Peet's will have revenues of $255 million in 2007, followed by revenues of $310 million for 2008. The earnings per share for this year look to be $.70 with 2008 earnings in the $.85-.86 range. Peet's will add 30 units this year, as it has done each of the past three years. The market can accommodate several thousand units as Peet's moves eastward.
Peet's has a unique following of customers featuring both in-store purchases and an active, well-managed website generating large revenues. Peet's has a convenience program like Starbucks, but also makes coffee gift-giving very easy for its customers. The "ecups" program allows customers to send friends an email offering them a gift of a cup of coffee to actual coffee beans. The company also offers many other coffee and tea "essentials" on its website like teapots, coffee pressers, etc.
Peet's has the opportunity to expand the concept beyond its West Coast base. The market is far from saturated even with Starbucks opening five to six new units per day in its system. Peet's will not be as large as Starbucks or as prolific. Peet's raison d'etre is to be the best and have the most loyal customer-base. The operating income for Peet's is currently at the 5-6% range, as the company re-invests its earnings and cash position into new, tasteful units and a modern roasting facility. As Peet's moves eastward, the company will need to build more roasting facilities if it intends to keep its products fresh.
Peet's stock has done well these past five years, ranging from a low of $11 to nearly $40. The company had to temporarily slow its growth as it re-modeled a number of stores and built-out one of its roasting facilities. With these initiatives behind it, growth should comfortably resume in the 20-25% range and remain sustainable for many years to come. With a $360 million market cap, Peet's could become a 20-30 bagger or more over the next couple of decades.
Georges Yared is the CIO of Yared Investment Research, where he explores more growth stock ideas.
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Reader Comments (Page 1 of 1)
5-22-2007 @ 6:45PM
Paul DePace said...
I will make this very very short Mr. Yared...What have you been smoking? Peet's "pushing Starbucks out of the way"... I don't care if Starbucks stock has been dead money this year, and they are getting huge, and they have lost some of their mojo and luster... There is no frickin' way that Peet's is going to push them anywhere. Peet's couldn't push Starbucks off a corner location. Your analysis has zero credibility from a fundemental retail standpoint or any other standpoint.
5-24-2007 @ 9:02AM
bullit said...
George - luv your analysis of apple and crocks, I couldnt agree more. However, I agree with PAUL on this one. Let me put it simply - Starbucks can do what it wants when it wants to. If they wanted to drive Peets in the Ground they could easily do it. In twenty five years Starbucks will be an international monster while Peets, if it can expand past the Rockies in that amount of time, will continue to the flea on the radar screen that it currently is.
5-24-2007 @ 7:30PM
Abi said...
PEET has the potential to push SBUX since PEET has better services and coffee(CA consumers can testify). But to change a potential to reality, it needs a major effort from either a new senior management team or new owner. We should not forget that it is underlying business and product that defines the success in the long run. It reminds me of Google vs Yahoo discussion in early 2000.