Starbucks Is Outperforming Peers In The 'Oligopolistic Premium Grocery Coffee Market'

Starbucks Corporation SBUX would likely generate mid- to high-teens annual EPS growth, Wedbush's Nick Setyan said in a report. He maintained an Outperform rating on the company, with a price target of $70.

Starbucks' growth is expected to be driven by "Americas comp momentum, accelerating CAP unit growth, a successful EMEA turnaround, and multiple CPG and emerging market opportunities," Setyan mentioned.

CPG Gains To Continue

JAB Holding Company's acquisition of Keurig Green Mountain Inc GMCR marks a "shift toward a more oligopolistic premium grocery coffee market," Setyan commented. He added that JAB may acquire more and the lower competition would benefit Starbucks.

"Our analysis indicates that in environments with comparable relative pricing and absent dramatic discounting from key competitors, SBUX tends to outperform peers," the analyst noted. While the EMEA and China CPG contributors have the potential to be meaningful, it was too early to make an assessment.

America Comp Momentum

Setyan believes that the US comp run-rate would continue in the mid-single digit range, "with Starbucks' high-end strategy a key near-term focus."

Higher Coffee Cost

Arabica coffee has risen 15-20 percent y/y and ~30 percent since its February lows. Starbucks is currently ~50 percent locked for its FY17 coffee needs. The analyst mentioned that this means coffee price movements would impact the company's margins in 2H17 and FY18.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!