Market Overview

Starbucks Earnings Preview: Room to Rise?


Starbucks (NASDAQ: SBUX) is scheduled to report fiscal first-quarter 2012 results tomorrow, January 26, after the closing bell. Shares have been reaching new 52-week highs pretty much since the company posted record numbers in its third-quarter report. How much further could another positive earnings surprise push the stock?

The consensus forecast of analysts calls for Starbucks to report quarterly earnings of $0.49 per share. That would up from $0.45 in the same period of last year, as well as a penny higher than the consensus EPS estimate 60 days ago. And so far, EPS are expected to grow year over year in the current quarter. Note that Starbucks has not fallen short of consensus EPS estimates in the past ten quarters.

Analysts also expect the coffee purveyor to report that revenues for the quarter rose 11.5% from a year ago to $3.3 billion. Sales also are expected to grow by about the same percentage in the current quarter. Revenue has risen in the past four quarters.

The Company

Starbucks offers coffee and other beverages, as well as fresh food items, at more than 10,000 locations in the U.S. and more than 6,000 locations overseas. The company also offers beverages and other products through supermarkets and other channels. Its brands include Starbucks VIA, Tazo tea and Seattle's Best Coffee. It is headquartered Seattle, is a component of the S&P 500 and was founded in 1971. Its market cap is now $35.5 billion.

During the three months that ended in December, the company opened its 500th store in China and its 500th in Latin America. It acquired Evolution Fresh, launched its K-Cups line and Create Jobs for USA initiative, and reached 26 million mobile transactions.

See also: Starbucks Wants the Bar Bucks.


Per-share earnings are expected to grow 17.6% over the next five years and the dividend yield is 1.4%. The Starbucks P/E and PEG ratios are less than the industry averages, and short interest is 1.4% of the float. Its return on equity is a healthy 30.9%. Of 28 analysts who follow the stock, 18 rate it a Buy or Strong Buy. But their mean price target of $48.05 per share is hardly any higher than the current share price.

The share price is more than 44% higher than a year ago and recently reached a multiyear high. The 50-day and 200-day moving averages have acted as support for the past two years. Over the past six months, the stock has outperformed such competitors as Dunkin' Brands (NASDAQ: DNKN), Green Mountain Coffee Roasters (NASDAQ: GMCR) and McDonald's (NYSE: MCD).

See also: Not the Way to Fight Starbucks.


Bullish: Investors interested in exchange traded funds invested in Starbucks might want to consider the following trades:

  • PowerShares Dynamic Leisure & Entertainment (NYSE: PEJ) is more than 28% higher than the 52-week low.
  • Consumer Discretionary Select Sector SPDR (NYSE: XLY) is more than 25% higher than the 52-week low.
  • iShares MSCI USA ESG Select Index (NYSE: KLD) is about 22% higher than the 52-week low.
  • First Trust Mega Cap Alphadex (NYSE: FMK) is almost 22% higher than the 52-week low.

Traders may prefer to consider these alternative positions in the same sector:

  • Caribou Coffee (NASDAQ: CBOU) is up more than 93% from the 52-week low.
  • Panera Bread (NASDAQ: PNRA) is up more than 55% from the 52-week low.
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