Critical Review: Starbucks (SBUX) and Papa John’s International (NASDAQ:PZZA)

Papa John’s International (NASDAQ: PZZA) and Starbucks (NASDAQ:SBUX) are both mid-cap retail/wholesale companies, but which is the better business? We will contrast the two companies based on the strength of their risk, analyst recommendations, earnings, institutional ownership, valuation, dividends and profitability.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for Papa John’s International and Starbucks, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Papa John’s International 0 6 3 0 2.33
Starbucks 0 10 18 1 2.69

Papa John’s International presently has a consensus price target of $79.25, suggesting a potential upside of 37.04%. Starbucks has a consensus price target of $63.25, suggesting a potential upside of 6.72%. Given Papa John’s International’s higher probable upside, equities research analysts plainly believe Papa John’s International is more favorable than Starbucks.

Institutional & Insider Ownership

84.2% of Papa John’s International shares are owned by institutional investors. Comparatively, 71.1% of Starbucks shares are owned by institutional investors. 27.7% of Papa John’s International shares are owned by insiders. Comparatively, 3.4% of Starbucks shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Volatility and Risk

Papa John’s International has a beta of 0.4, suggesting that its share price is 60% less volatile than the S&P 500. Comparatively, Starbucks has a beta of 0.75, suggesting that its share price is 25% less volatile than the S&P 500.

Valuation & Earnings

This table compares Papa John’s International and Starbucks’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Papa John’s International $1.71 billion 1.18 $102.82 million $2.90 19.94
Starbucks $22.39 billion 3.77 $2.88 billion $1.97 30.09

Starbucks has higher revenue and earnings than Papa John’s International. Papa John’s International is trading at a lower price-to-earnings ratio than Starbucks, indicating that it is currently the more affordable of the two stocks.

Dividends

Papa John’s International pays an annual dividend of $0.90 per share and has a dividend yield of 1.6%. Starbucks pays an annual dividend of $1.20 per share and has a dividend yield of 2.0%. Papa John’s International pays out 31.0% of its earnings in the form of a dividend. Starbucks pays out 60.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Profitability

This table compares Papa John’s International and Starbucks’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Papa John’s International 6.12% 4,321.08% 19.07%
Starbucks 12.89% 53.34% 21.21%

Summary

Starbucks beats Papa John’s International on 11 of the 17 factors compared between the two stocks.

Papa John’s International Company Profile

Papa John’s International, Inc. (Papa John’s) operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark Papa John’s. The Company operates through five segments: domestic Company-owned restaurants, North America commissaries, North America franchising, international operations and all other business units. North America is defined as the United States and Canada. Domestic is defined as the contiguous United States. International franchisees are defined as all franchise operations outside of the United States and Canada. As of December 25, 2016, there were 5,097 Papa John’s restaurants in operation, consisting of 744 Company-owned and 4,353 franchised restaurants operating domestically in all 50 states and in 45 countries and territories. It offers pizza along with side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

Starbucks Company Profile

Starbucks Corporation (Starbucks) is a roaster, marketer and retailer of coffee. As of October 2, 2016, the Company operated in 75 countries. The Company operates through four segments: Americas, which is inclusive of the United States, Canada, and Latin America; China/Asia Pacific (CAP); Europe, Middle East, and Africa (EMEA), and Channel Development. The Company’s Americas, CAP, and EMEA segments include both company-operated and licensed stores. Its Channel Development segment includes roasted whole bean and ground coffees, Tazo teas, Starbucks- and Tazo-branded single-serve products, a range of ready-to-drink beverages, such as Frappuccino, Starbucks Doubleshot and Starbucks Refreshers beverages and other branded products sold across the world through channels, such as grocery stores, warehouse clubs, specialty retailers, convenience stores and the United States foodservice accounts.

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