Starbucks is going to see major growth in 3 key areas after its deal with Nestle

  • Starbucks and Nestle announced a partnership that will boost the Seattle-based coffee company’s international presence and further its China-strategy.
  • Morgan Stanley expects Starbucks to use the extra cash from the $7.15 billion deal for share buybacks in fiscal year 2019.
  • Watch Starbucks trade in real-time here.

Starbucks’ coffee alliance with Nestle is predicted to bring big benefits over the long-term.

Nestle, the Swiss-based food giant known for Nesquik and Nespresso, agreed to pay Starbucks $7.15 billion for the right to sell Starbucks products, according to a press release Monday. In reaction to the news, Morgan Stanley identified 3 major areas of growth for the Seattle-based coffee maker: international markets, existing consumer packaging business, and capital return to shareholders.

The partnership between the two coffee giants will push Starbucks further into international markets, Morgan Stanley analyst John Glass says. Building an international presence has been a recent focus of the company. On its earnings call two weeks ago, Starbucks noted the Chinese market will be key to its long-term growth strategy.

Nestle is an established international company that has the scale and reach to help globally manage and “accelerate the growth of SBUX’s [consumer packaged goods] and food services business,” Glass wrote. Present in 189 countries around the world, the Swiss-based company owns more than 2000 brands that range from Gerber Baby Food to Kit Kat chocolate bars.

Glass expects the deal to also reaccelerate the company’s domestic-consumer-packaged goods business which has slowed recently after years of accelerated growth. Leaving Nestle to focus on the consumer-packaged goods business will allow Starbucks to work on its core business, he wrote.

The influx of cash from Nestle plus any additional royalties also gives Starbucks a chance to return capital to shareholders. Starbucks announced it would return $20 billion to shareholders through 2020, an increase from its previously estimated $15 billion. Glass predicts the extra $5 billion will be used for stock buybacks in fiscal year 2019.

Starbucks is down 0.3% this year.

SBUX

source
Markets Insider