Goldman Takes A Deep Dive Into Starbucks' CPG Business

Starbucks Corporation’s SBUX CPG business seems to be “a potentially underappreciated component of the longer-term growth story,” Goldman Sachs’ Karen Holthouse said in a report. She maintained a Buy rating on the company, with a price target of $69.

Starbucks’ CPG business has high margins and offers high returns, and lends upside to the company’s long-term targets even before considering incremental new verticals, analyst Holthouse commented. She added that the Starbucks brand was “a core intangible asset,” which put the company in a strong position when forming partnerships for new ready-to-drink [RTD] or other CPG verticals.

Opportunities

Holthouse estimated the after-tax profit opportunity from the China RTD and US RTD Tea partnerships, along with Nespresso pods in Europe, could reach a combined $21-$47 million by 2020. She further stated that the company’s “new focus on signing these types of agreements could mean added opportunities on the horizon.”

Even after using “fairly conservative assumptions for other CPG drivers,” this drives 8 percent upside to Starbucks’ long-term guidance of nearly doubling F14 EBIT by 2019. The analyst added that the $0.04 of EPS upside by 2019 “is the profit equivalent of nearly 2pp of US comp over that period.”

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