Analysts Drink Up Starbucks' Solid Quarter

Starbucks Corporation SBUX delivered a significant sales beat, a 5% comps increase and an inline bottom-line in its fourth-quarter earnings report.

“Starbucks continues to make progress driven by increased customer traffic especially in later dayparts and continues to reach more customers through its mobile app and digital marketing initiatives,” Tigress Financial analyst Ivan Feinseth wrote in his daily newsletter.

The Earnings

U.S. comps rose 6% on 3% traffic growth and a 3% increase in the average check. Analysts attributed the performance to beverage execution and a 15% year-over-year surge in active rewards membership.

Stephens analyst Will Slabaugh considered the benchmarks “impressive after last quarter’s surprise pickup in both traffic and comps.”

KeyBanc noted a 100-basis-point decline in operating margins in the Americas caused by wage inflation, increased labor hours and leadership conference expenses.

“We view this effort as more of a learning exercise, as the Company looks to leverage insights to optimize labor deployment in the future using its newly developed artificial intelligence machine, ‘Deep Brew,’” KeyBanc analysts Eric Gonzalez and Benjamin Blake wrote.

China also expanded comps 5% on 2% traffic growth — an unexpected feat given the rise of regional competitors.

“China was again ahead of its longer term guidance range, which gives us further confidence in the brand’s positioning in that market during a period of relative unease,” Slabaugh wrote.

The Ratings

On the whole, analysts remain optimistic about Starbucks’ prospects.

“Starbucks’ strong brand equity and ongoing innovative initiatives will continue to drive the stock higher,” Feinseth wrote. “I believe further upside exists from current levels and view any weakness as a buying opportunity.”

Credit Suisse concurred.

“We believe SBUX’s ongoing focus on its cold beverage platform, evolution of its digital ecosystem and initiatives to enhance the customer experience should continue to drive benefits across all dayparts,” analyst Lauren Silberman wrote.

• Bank of America maintained a Buy rating and $97 price target.
• Credit Suisse maintained an Outperform rating and $105 target.
• KeyBanc Capital Markets maintained an Overweight rating and $105 target.
• Stephens maintained an Equal-Weight rating and $90 target.
• UBS maintained a Neutral rating and $95 target.

“Despite generating one of the stronger results this earning season as expected, we believe risk/reward is balanced given likely limited upward FY20 EPS revisions, difficult comp compares, and valuation (~30x EPS) already reflecting elevated expectations,” UBS analyst Dennis Geiger wrote.

At time of publication, shares traded up marginally at $84.90.

Related Links:

Starbucks, Google Score Legal Victories In Europe; Fiat Has To Pay Up

Starbucks Investors Breathe Sigh Of Relief Amid Report Of No SEC Inquiry