Why Starbucks Remains A Great Stock Despite High Valuation Multiples

• Starbucks Corporation SBUX shares have been rising steadily and are up 61 percent since October 2014.
• Bernstein’s Sara H. Senatore maintained an Outperform rating on the company, with a price target of $70.
• Starbucks’ stock is a core holding that is expected to compound value into the future, Senatore stated.

Starbucks’ shares have continued to rise and are up 10 percent since the end of the quarter ended June. The uptrend was driven by robust 3Q15 US comps, which resulted from traffic and ticket growth, analyst Sara H Senatore said.

Senatore noted that the The My Starbucks Rewards, or MSR, program has enabled the company to build a strong customer base, while allowing it to develop a good understanding of customer behavior and incentives.

The analyst expects Starbucks to record 4Q15 US comps growth of 7 percent, as compared to 5 percent last year and 8 percent in the previous quarter, supported by Mobile Order & Pay and continued intensifying of email marketing.

The company’s ongoing emphasis on using bonus stars rather than direct discounting to reward customers is a more cost effective promotional strategy, the Bernstein report mentioned, while adding that Mobile Order & Pay is driving incremental sales in the initial launch markets.

“We continue to see Mobile Order & Pay as a key driver behind sustainable MSD comps going forward,” Senatore wrote.

While the entry-point attractiveness for Starbucks’ shares will ebb and flow, the stock remains a core holding that will likely compound value into the future, Senatore stated. He added, “We have clear visibility into comp drivers ahead –food, non-coffee beverages, mobile and loyalty –and we would expect Starbucks' multiple to persist near historical highs.”