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What Analysts Have to Say About Starbucks After Its Earnings Report

Starbucks Corp. (NASDAQ: SBUX) reported its fiscal third-quarter financial results after the markets closed on Thursday. Overall, analysts remained positive after these results, although it was not necessarily reflected in the initial investor reaction. 24/7 Wall St. has included some of the key points of the earnings report, as well as what a few analysts are saying about Starbucks after the fact.

The company said that revenues were up 7% to a record $5.238 billion in the quarter. Its non-GAAP operating earnings were up 9% to a third-quarter record $1.0 billion, with its comparable earnings coming in at $0.49 per share ($0.51 GAAP EPS) with a non-GAAP margin at a record 19.8%. Thomson Reuters had called for earnings at $0.49 per share (non-GAAP) on revenues of $5.33 billion.

The coffee giant reported that its global comparable store sales increased 4%, which was broken down as a 4% gain in its Americas segment, followed by a 3% gain in the China/Asia Pacific segment and a 1% decline in the EMEA segment.

Two other milestones were mentioned as well. Mobile Order and Pay usage reached 5% of U.S. transactions, up from 4% just one quarter earlier. Membership in the Starbucks Rewards loyalty program rose by 18% from a year earlier, up to 12.3 million active U.S. loyalty members.

Oppenheimer has an Outperform rating on Starbucks with a $65 price target. The firm noted that its domestic comps are now trending below management’s original targets of “somewhat above mid-singles.” The primary headwind is the harsh industry slowdown, proving even Starbucks can be a boat in the tide. But Oppenheimer is now more aggressive buyers on any stock weakness for a few reasons:

  • A SSS acceleration as early as this quarter is expected by Oppenheimer and management.
  • The 2016 EPS outlook remains firmly intact, proving the model’s levers on lighter comps.
  • Management debunked a growing fear that 2017 EPS is not equipped to grow at least 15%.

Merrill Lynch addressed across the board comp and margin miss during the quarter in its report:

We continue to rate Starbucks shares Buy and are lowering our price objective to $67 from $68. Starbucks reported adjusted third quarter EPS at $0.49, in-line with our estimate and at the top end of $0.48-$0.49 guidance. However, earnings quality was weak with $0.02 of benefit from a lower tax rate offsetting a broad comp and margin miss. The key Americas/U.S. same store sales metric was a disappointing up 4% (transactions flat and check up 4%) and likely missed buyside expectations that we believe had been moving lower throughout the quarter. Comps were also below our estimates for CAP (up 3%) and EMEA (down 1%). The company highlighted a traffic-driven 7% comp in China that offset an only modestly positive Japan comp where performance was challenged by the macro and a recent earthquake. EMEA continues to struggle with macro softness and the ripple effects of security concerns from several recent terrorism incidents. Mobile order and pay is up to a 5% mix of transactions but runs much higher in Starbucks busiest stores and especially at peak sales periods.

A few other analysts weighed in on Starbucks after earnings:

  • Jefferies maintained a Buy rating but the price target was cut to $65 from $70.
  • Credit Suisse maintained a Neutral rating but cut its target price to $58 from $61.
  • Wedbush reiterated an Outperform rating with a $70 price target.
  • BTIG Research has a Buy rating but lowered its price target to $64 from $75 price target.
  • Piper Jaffray reiterated an Outperform rating.

After heavy trading on Friday, shares of Starbucks ended the week at $57.90, up only fractionally on the day. The consensus analyst price target is $67.92, and the 52-week trading range is $42.05 to $64.00.