How The Law Of Large Numbers Makes It Tough For Starbucks To Meet Expectations

Starbucks Corporation SBUX announced its Q4 EPS ahead of expectations, while its F17 guide reflected acceleration in the back half. There seems to be “too much attention” on the company’s US comp growth, Barclay’s Jeffrey A. Bernstein said in a report. He maintains an Equal-Weight rating on the company, while reducing the price target from $60 to $57.

With Starbucks having reported a U.S. comp shortfall in Q3, investors were on the lookout for a reacceleration in Q4.

Law Of Large Numbers

“The law of large numbers is difficult to overcome,” analyst Bernstein commented. Given the company’s size and strength, there’s too much attention being paid to U.S. comp growth.

Although Starbucks achieved an improvement (albeit modest) in the two-year trend, the comp still missed expectations. Bernstein expects the company’s growth to remain at the low-end of its mid-single-digit guidance through the first half of F17. “At that time, the benefits of easing compares coupled with an acceleration of new products and initiatives should allow for a reacceleration in trend.”

With comp and EPS growth likely coming in at the lower-end of the guidance ranges in the first half of F17, the stock is unlikely to outperform in the near term, the analyst added. The EPS estimate for the current fiscal year has been reduced from $2.15 to $2.13.

At last check, Starbucks was up 3.21 percent at $53.43.