Starbucks Snags S&P Upgrade (SBUX)

The debt ratings agencies might be tarnished on many fronts, but traders for debt and equities still pay attention to debt ratings agencies when they raise ratings on companies.  That is exactly what has happened today at Starbucks Corp. (NASDAQ: SBUX).  Standard & Poor’s has raised the upscale coffee retailer’s short-term debt ratings and revised its outlook to ‘stable’ from negative.

S&P took its short-term and commercial paper ratings up to ‘A-2’ from ‘A-3’. S&P also reaffirmed the Starbucks ‘BBB’ rating (investment grade) for its corporate credit rating.  The most favorable note here is that despite the weak economy the company has been rewarded for improved credit metrics via cost controls and reducing debt.  More importantly, S&P believes that the company’s performance will continue to stabilize and that the credit metrics will continue to improve or remain at the current levels.

If there was any concern, it was that weaker top-line growth has tempered these strengths.  S&P does expect revenues to decline in fiscal 2009 on the net reduction in stores in the U.S. and on a small gain internationally.  We compared this ourselves, and see that the $10.383 billion in sales for fiscal Sept-2008 compared to Thomson Reuters estimates of $9.72 billion for fiscal Sept-2009 and $9.8 billion for fiscal Sept-2010.  S&P also expects that same-store sales are likely to be in the negative mid-single-digit range for 2009.

If you review the balance sheet as of June 28, 2009, the company listed cash and cash equivalents as $292 million, short term investments as $44.7 million, and long term investments as $408.4 million.  We’d actually give it high marks on its receivables and inventories as both “usable” and as “collectible”… Net receivables were $532.3 million and inventory was $703.6 million.

Now that the stock has recently hit 52-week highs, shares are taking a bit of a breather.  We have shares down 0.8% at $19.29 in late-morning trading.  The 52-week trading range is $7.06 to $19.85.

JON C. OGG