North America

Earnings Preview: Starbucks Q1 2017 (SBUX)

By: Craig Bowles

Overview
Starbucks, Corp. (SBUX) is slated to report 1Q 2017 earnings after the bell on Thursday, January 26th. The earnings release is expected at approximately 4:05 p.m. ET with a conference call to follow at 5:00 p.m. that is webcast through Starbucks Investor Relations. Starbucks is a component of the S&P 500 and NASDAQ 100 indices, so results can impact index futures. Starbucks announced a two-for-one stock split on March 18, 2015.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS) and Earnings Per Share (EPS) Excluding Items: Company guidance for Adjusted EPS is $0.54 to $0.55. The current Street estimate is $0.52 (range $0.51 – $0.53). (Source: Yahoo! Finance).  Consensus was $0.55 three months ago, as well. If an adjusted number is unavailable, Earnings Per Share (EPS) number would be comparable to consensus estimates.
  • Revenues: Analysts expect an increase of 8.8% y/y to $5.85 bln (range $5.74 bln to $5.98 bln).
  • Comparable Sales: Q3 and Q4 were 4%. Last year’s was 8%.

Adjusted Earnings Per Share (EPS) Guidance:

  • Adjusted Earnings Per Share (EPS) Guidance (2Q 2017): The current consensus is $0.46 (range $0.43 – $0.47).
  • Adjusted Earnings Per Share (EPS) Guidance (FY 2017): Company guidance for Adjusted EPS is $2.12 to $2.14. The current estimate is $2.14 (range $2.10 – $2.22).
  • Starbucks’ Price/Book of 14.5 compares to a 5-year average of 11.4; Price/Sales of 4.1 vs 5-year average 3.8; Price/Cash Flow of 19.0 vs 5-year average 48.4; Dividend yield of 1.5% compares to a 5-year average of 1.3%.
  • Analysts are bullish on Starbucks with 25 Buy, 6 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders show bought 16,576 shares the last three months but have sold a net 1,615,739 shares in the past year. (source: NASDAQ.com) In July 2015, Starbucks approved an additional 50 million shares stock buyback on top of the 11 million shares available in the old plan.
  • Coffee prices rebounded in 2016 until Q4’s setback. (Chart)
  • Starbucks is compared to major coffee retailers with quarterly results possibly impacting Dunkin’ Brands Group (DNKN), Green Mountain Coffee Roasters (GMCR) and new entry McDonald’s (MCD).
  • Starbucks shares have shown a 1-day average price change on earnings of 2.55%. Options are pricing in an implied move of 3.19% off earnings.

Recent News

  • 01/05: Instinet believes that Starbucks will have no problem hitting its goal of 37,000 stores by 2021, up from 25,000 at the end of 2016. The company could eventually exceed 50,000 locations globally, according to a post on Barron’s.com.
  • 12/28: Kevin Johnson, a tech veteran who is now Starbucks’ Chief Operating Officer, will take over as CEO in April replacing Howard Schultz, according to a post on Barron’s.com.
  • 12/23: Societe Generale suggests using the price of a coffee from Starbucks similar to the “Big Mac” method to determine currency valuations. The rouble is 33% overvalued against the pound, according to a post on Barron’s.com.
  • 12/22: RBC lists Starbucks among their top three Outperform rated names based on: 1) company-specific initiatives; 2) potential benefit of improving retail/restaurant industry; 3) reasonable valuation levels; and 4) potential benefit from corporate tax changes, according to a post on Barron’s.com.
  • 12/14: Standard & Poor’s upgraded its credit rating on Starbucks to A from A-minus on the expectation that solid performance trends and credit protection metrics will continue over the next several years along with successful execution of higher-end focused growth initiatives, according to a post on Barron’s.com.

Technical Review

Starbucks third leg up of this expansion made a similar move up as the first leg, so this resistance in the $60 area was expected.  Point and figure technicians now have a bullish price objective of $75 after nearing their $47 bearish objective. (Chart courtesy of StockCharts.com)

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Summary

Starbucks’ solid growth prospects and share buybacks have analysts mostly bullish on the stock. A new CEO takes over in April but S&P gave the company a higher credit rating anyway while Moody’s said the uncertainty of a new CEO is a “credit negative.” The company has reported earnings similar to consensus two of the last four quarters and beaten by 1c the other two quarters. Estimize consensus for a Non-GAAP EPS of $0.53 on revenue of $5.852 bln compares to analyst consensus of $0.52 on revenue of $5.85 bln. Comparable store sales and guidance will be of interest.

 

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