The U.S. economy grew by 3% in the second quarter; Earnings updates on Starbucks, Hershey, and Visa
1) This morning, the Commerce Department's Bureau of Economic Analysis released an advance estimate for U.S. GDP...
As this Wall Street Journal article notes, the U.S. economy grew by 3% in the second quarter, exceeding estimates of 2.3%:
It followed a first quarter where GDP shrank at a 0.5% annual rate as businesses loaded up on imports to get ahead of the Trump administration's anticipated tariffs.
Over the first six months of the year, the economy grew, but at a much more modest pace than last year: at a 1.2% annual rate. That was slower than 2.5% growth in 2024, measured from the fourth quarter of the prior year, and comes as the economy has grappled this year with stop-start tariff policies, a nosedive and partial recovery in consumer sentiment and worker deportations...
This report reinforces my view that the U.S. economy is still remarkably resilient.
The economy is likely to support stocks continuing to rise... though high valuations should lead investors to have modest expectations.
2) Shifting gears, regular readers know that I've been following coffee giant Starbucks (SBUX)...
The company just reported its latest quarterly earnings. So let's take a look...
Starbucks had another weak quarter. Same-store sales declined 2%, missing estimates of a 1.3% decline and marking the sixth straight quarterly contraction.
Revenue rose 3.8% to $9.5 billion, exceeding estimates of $9.3 billion. But operating expenses rose 11.8%, driven by deleverage, inflation, and investments in various business strategies.
As a result, operating margin plunged from 16.7% to 9.9%. Earnings per share ("EPS") also fell to $0.50, down 46% year over year and missing estimates of $0.65.
So, why is the stock roughly flat this morning despite the weak report?
For the answer, I turned to my friend Lloyd Khaner of hedge fund Khaner Capital...
Lloyd pitched Starbucks at my Value Investing Congress on October 19, 2009. And he rode the stock, then at $10.47 per share, to more than $100 per share before exiting a few years ago.
So I asked him for his latest thoughts on the company. And as he replied in a private e-mail:
The Starbucks turnaround train has left the station! Financial metrics remain negative for the most part, but Starbucks is slowly chugging down the tracks at a controlled, smart pace.
For the next 6 to 12 months, the company will be picking up operational excellence with its green apron program, food excellence as it innovates and delivers new products, and place excellence as a Starbucks store once again becomes that special place you want to spend hours in.
Early wins already include getting service time to under four minutes, both inside the store and for the drive-through. That's not a good start, that's a great start. They are also revamping and improving their loyalty program and mobile ordering platform.
Most importantly, food quality and innovation have already begun. This is the single biggest opportunity Starbucks has always had, but has never capitalized on.
However, Lloyd thinks it's too early in the turnaround process to buy the stock:
The train will likely start picking up speed by midyear 2026 and that will likely be the time to get on. It looks like the train will be hitting cruising speed by 2027 and then accelerate from there. So you still have some time.
For now, sit back and watch the financial metrics, the qualitative improvements in the store, and the experience of Starbucks as we used to know it come back to life. Ultimately, it might even be better than ever.
Get ready to mark your calendars for some time in the first half of 2026 when Starbucks goes back to having its large-scale investor days to lay out its current state as well as its future plans. My guess is the future plans are going to map out a ride we're all going to be happy to buy a ticket for at a really great price.
Thank you, Lloyd!
I'll also add that at this morning's price of around $91, the stock isn't cheap...
It's trading at 41 times this year's EPS estimates of $2.24 and 32 times next year's estimates of $2.84 – too expensive to consider buying right now. Hopefully the market will provide a better entry point in the near future...
If so, as always, my team and I at Stansberry's Investment Advisory will take a deeper look. And subscribers will be the first to receive any recommendations. (If you aren't already subscribed to our flagship newsletter, you can learn how to do so by clicking here.)
3) Iconic candy maker Hershey (HSY) and credit-card giant Visa (V) – two open recommendations in the Investment Advisory – also released their latest earnings reports.
So let's first take a look at Hershey...
The company reported strong second-quarter earnings, which made the stock rise 4% this morning. Revenue of $2.6 billion came in slightly above estimates of $2.5 billion. And adjusted EPS came in at $1.21, smashing estimates of around $1.
The company reiterated its full-year revenue guidance of 2% growth. However, it cut adjusted EPS guidance by about 3%, which would represent a 36% to 38% decline from 2024 EPS.
Hershey continues to face headwinds from tariffs and high costs for cocoa, as I discussed in my July 14 e-mail. But my conclusion remains the same:
The headwinds Hershey faces are well known and, I believe, reflected in the stock price. That gives investors the opportunity to own one of the greatest, most capital-efficient businesses in the world at a discounted price.
The Investment Advisory team first recommended buying Hershey's stock back in December 2007. Subscribers who followed the advice are currently up 463% on the position.
4) Meanwhile, Visa reported another excellent quarter...
Revenue rose 14% to $10.2 billion, ahead of estimates of $9.8 billion. And adjusted EPS came in at $2.98, up 23% and topping estimates of $2.85.
I analyzed Visa's financials in my June 26 e-mail. As I concluded, they "appear perfect in every way." This is one of the world's greatest businesses, which is why my team recommended buying it in the April 2020 issue of Investment Advisory. Subscribers who followed the advice back then are up nearly 130%.
With the stock trading today at 31 times this year's estimated earnings, it's fairly valued and looks like a comfortable hold. But I would wait for a pullback to consider jumping in.
Again, if you're not already an Investment Advisory subscriber, you can find out how to become one – and gain access to all our future ideas and current open portfolio of recommendations – by clicking here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.