Pat McKeough responds to many requests from members of his Inner Circle for specific advice on buying stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week we had a question from an Inner Circle member on one of the most visible coffee franchises in the world. Starbucks continues to open new stores around the globe at a rapid pace. Pat assesses the consequences of the company’s court-ordered payment to get out of a deal with Kraft Foods, and examines its prospects as it pushes forward with its ambitious expansion program.

Q: I am wondering about Starbucks Corporation. They seemed to do very well last year. Keep up the good work.

A: Starbucks Corp., (symbol SBUX on Nasdaq; www.starbucks.com), is a leading seller and roaster of specialty coffee.

Starbucks has 8,078 company-operated stores and 5,415 licensed outlets in 62 countries. Stores in the Americas supply 74% of its sales, followed by Europe, the Middle East and Africa (8%), and China and the Asia-Pacific region (6%). It gets a further 6% of its sales by selling coffee and other beverages through supermarkets and 3% from other activities, like online sales.

In its 2013 fiscal year, which ended September 29, 2013, Starbucks’ sales rose 12.7%, to $14.9 billion from $13.3 billion in fiscal 2012. That’s partly because the company opened 1,701 new stores during the year. On a same-store basis, sales rose 7%, reflecting a 5% increase in the number of transactions and a 2% rise in selling prices.

Earnings jumped 24.3%, to $1.7 billion from $1.4 billion. Due to fewer shares outstanding, earnings per share rose 26.3%, to $2.26 from $1.79.

The latest earnings exclude a $2.8-billion charge after the company lost an arbitration case against Mondelez International (Nasdaq symbol MDLZ), a recommendation of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stocks.

Starbucks planning 1,500 new store openings for 2014

In 1998, the old Kraft Foods Inc. began distributing Starbucks-brand packaged coffee to grocery stores. In November 2010, Starbucks cancelled the deal, claiming Kraft failed to “protect and promote” its brands under the terms of the contract.

On October 1, 2012, Kraft Foods Inc. broke into two publicly traded companies: Mondelez and Kraft Foods Group (Nasdaq symbol KRFT). In November 2013, an arbitrator ordered Starbucks to pay $2.7 billion in damages. Under the terms of the Kraft Foods breakup, the award went to Mondelez.

Starbucks feels the payment was a reasonable cost of gaining full control of its grocery-products business. Thanks to strong demand for its Via instant coffee, as well as coffee packs (known as K-Cups) for the Keurig single-serve brewer, sales through grocery stores rose 11.8% in fiscal 2013.

In fiscal 2014, the company expects to spend $1.2 billion to open 1,500 stores and upgrade existing locations. This includes continued expansion in overseas markets like Brazil, India and China.

As well, the company recently raised its quarterly dividend by 23.8%, to $0.26 a share from $0.21. The new annual rate of $1.04 yields 1.4%.

In the Inner Circle Q&A, Pat looks at Starbucks’ earnings forecast for 2014 in light of its plans for new store openings and drive for greater efficiency. He also assesses the company’s balance sheet and its growth prospects in overseas markets. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

There have been plenty of jokes about a Starbucks on every corner (not to mention Tim Hortons). Do you believe there is a saturation point for steadily-expanding food and retail chains? Have you sold stocks like these because they seemed to have reached their growth peak? Did you see a specific problem with the company that prompted you to sell, or did you go on gut instinct? Was it a good decision?