Starbucks Should Continue To Outperform

Wedbush’s Nick Setyan expects “Americas comp momentum, accelerating CAP unit growth, a successful EMEA turnaround, and multiple CPG and emerging market opportunities to drive consistent mid-to-high teens annual EPS growth” for Starbucks Corporation SBUX.

The analyst reiterates an Outperform rating on the company, with a price target of $65.

Q2 Comps

Setyan mentioned that recent checks indicate comp growth in the Americas is likely to come in at 3 percent during FQ2. Although this is below the consensus expectations of 3.6 percent, the analyst believes 3 percent is “largely in-line with buy-side expectations.”

Setyan expects Starbucks to witness 3 percent comps for FQ2, with 5 percent for FQ3 and 6 percent for FQ4.

The checks also indicated the West Coast, especially California, trailed the rest of the country by 1-2 percent.

“West Coast commentary also directly indicated that traffic has picked up in recent weeks, coinciding with the end of wet weather,” the analyst stated.

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Acceleration Expected

Setyan expects a normalization of tax refunds to be a potentially significant driver of acceleration for Starbucks through the end of March and into April.

In addition, the analyst expects “throughput initiatives, continued menu innovation, and incremental digital initiatives around loyalty and mobile, such as suggestive selling and voice ordering, to result in a 2H:17 comp acceleration in the context of easing YoY comparisons.”

Setyan also believes the increased promotional activity in FQ2 to drive traffic could help accelerate trends or offset headwinds.

“We continue to believe enough flexibility exists on the cost side, particularly around partner and technology investments, to meet or exceed mid-teens EPS growth in FY17 and beyond even on a lower comp trajectory,” the analyst added.