Starbucks Corporation SBUX shares traded high by 1.2% on Wednesday after the company held its first investor day event since announcing Laxman Narasimhan will be taking over as the new CEO.
Starbucks holds investor day events once every two years to update investors on its long-term financial projections and initiatives. This year's event focused on slumping traffic, pressured margins, labor relations and the difficult macroeconomic environment, particularly in China.
Interim CEO Howard Schultz told investors that Starbucks is anticipating record new store growth and double-digit earnings and revenue growth over the next several quarters. In addition, Schultz said investors should expect ongoing strength in same-store sales growth and a return to share buybacks.
Starbucks says it plans to open roughly 2,00 new locations from 2023 to 2035. Chief Operating Office John Culver said these new stores will generate 50% return on investment and 25% cash margins. Culver added that North American revenue will grow by approximately 40% over the next three years, helping boost margins.
Accelerating Growth: Bank of America analyst Sara Senatore said Starbucks offers investors an "attractive risk-reward and valuation" given its accelerating growth.
"Starbucks has set a high bar for itself and while we believe it is achievable given brand strength and new management capabilities, we believe skepticism persists about the challenges of accelerating growth - in particular at a time of macro uncertainty," Senatore wrote.
Cowen analyst Andrew Charles said stronger comps should trigger earnings multiple expansion for Starbucks shares.
"SBUX outlined a credible plan to accelerate strong U.S. comps & U.S. development (underpinned by sustained ~2 year cash paybacks) and improve a weakening unionization narrative," Charles wrote.
China Uncertainty: BMO Capital Markets analyst Andrew Strelzik said Starbucks' updated growth targets are ahead of his expectations, but not unreasonable.
"We see focus on drive-thru (and pickup) stores as a natural extension of SBUX’s US store base repositioning, layering on to its Trade Area Transformation program," Strelzik wrote.
Wedbush analyst Nick Setyan said North American sales growth projections are impressive, but the company's guidance for 13% unit growth and 4% to 6% same-store sales growth in China should be viewed with skepticism given the difficult environment.
"We believe SBUX' current valuation appropriately reflects near-term NA SSS growth strength on the one hand, offset by limited near-term visibility into China's SSS growth and limited medium- to longer-term visibility into SBUX's operating margin trajectory," Setyan wrote.
Ratings And Price Targets:
- Bank of America has a Buy rating and $109 target.
- Cowen has an Outperform rating and $104 target.
- BMO Capital Markets has an Outperform rating and $105 target.
- Wedbush has a Neutral rating and $92 target.
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