Americans take coffee drinks seriously as can be evidenced from the lines in the morning at countless retail stores and service stations throughout the country. But trying to determine which company will become the dominant player in caffeinated beverage in the years to come is a bit difficult largely because the population can at times be fickle. There is intense competition for your morning business. With all that said, here are some more thoughts on some of the big players right now.
Starbucks (Nasdaq:SBUX) is the first company that comes to my mind when I think of coffee, and the reason is because it has become so popular among both younger and older drinkers in recent years. Also the company has done a lot with coffee and the experience it offers in its stores. It not only offers traditional coffee, but a range of other attractive and tasty drinks for virtually every taste. And recently it has come out with an instant coffee, Via, and earlier this week it was reported that its going to start offering free Wi-Fi. This could attract some new clientèle, enhancing a visit to the company's stores and helping to set it apart.
On the earnings side of the coin the company has consistently surpassed estimates, which is something yours truly finds attractive as well. On the downside, Starbucks' stock isn't rock bottom cheap on a price-to-expected earnings basis as I write this article. It actually trades at 22.3 times this year's estimate. (Learn more about the P/E ratio, see: The P/E Ratio: A Good Market-Timing Indicator).
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Meanwhile, McDonald's (NYSE:MCD) trades at 15.4 times this year's estimate and has exceeded estimates the last three quarters. In its stores it now sells popular products like lattes and cappuccinos in addition to traditional coffee, and its been advertising these to help bring customers into its stores on a consistent basis. Long-term this is a popular company that can put a good deal of pressure on Starbucks - and compete with them in a lot of markets around the nation because of McDonald's size/store count numbers and financial well being. It's likely that these two will be doing battle for years to come.
Other big chains that offer popular coffee products including Dunkin Donuts, Wawa, Burger King (NYSE:BKC) and Wendy's (NYSE:WEN) are in the mix. Each of these companies are bound to challenge the big two in many markets in the future.
Trying to predict which company will be at the top many years from now is difficult because the landscape will probably shift. That said, my choice right now would have to be McDonald's. Not only does the company sell attractive coffee drinks, but also a wealth of other food items at very low prices. This is attractive to many struggling Americans, especially in these financially difficult days. Based upon its earnings potential, yours truly could see the shares trading in the mid $80 area or even higher within the next couple of years. The stock currently sells for $69.30.
Coffee is something that many of us can get excited about. McDonald's is the company above that is most attractive to me now, based upon its price-to-expected earnings multiple, its earnings possibilities in the next few years, and of course its attractive product line which includes coffees.
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