Goldman Believes Starbucks Comps Could Accelerate In Q4, Adds To Conviction List

Prospects of a reacceleration in comps and a favorable valuation point towards potential multiple expansion in Starbucks Corporation SBUX shares, Goldman Sachs’ Karen Holthouse said in a report. She reiterated a Buy rating on the company and added the stock to the Americas Conviction list. The price target has been maintained at $69.

Comps In 4Q

Starbucks’ comps reflect “a fairly clean algorithm,” with food being at 1-2 percent, beverage at 2 percent and “other” [combination of various digital, marketing, and loyalty initiatives] at 2-4 percent. In the latest quarter, loyalty transition caused a disruption, falling to 0 percent, while the combination of food and beverage was near record highs, analyst Karen Holthouse mentioned.

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“With the loyalty noise in the past, SBUX is now in a position to tap into a pipeline that includes driving MOAP adoption, refined suggestive selling in the app, and better 1-1 marketing capabilities,” Holthouse wrote. This would boost the contribution from “other” towards historical levels, allowing Starbucks to “comfortably” return to a comp algorithm of more than 5 percent.

Potential Upside

Starbucks’ shares are currently trading at the low-end of their long-term range. “We would expect a 7% Americas comp lap in F1Q17 to become a bear thesis for some investors; however, we see valuation providing support,” the analyst commented.

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