What to Look For in Starbucks Earnings

Starbucks Corp. (NASDAQ: SBUX) is set to report its fiscal fourth-quarter financial results after the markets close on Thursday. With this earnings report on the table, investors have a few questions for Starbucks. While Starbucks has lagged the markets, many investors are wondering if this coffee giant has expanded too much and if it is time for a pullback, or if these earnings are the turnaround that Starbucks is waiting for.

So far in 2017, Starbucks shares have remained relatively flat, compared to the S&P 500, which is up roughly 15% year to date. Over the past 52 weeks, the stock is up only 5%, still being outpaced by the broad markets.

As for the earnings, Thomson Reuters has consensus estimates of $0.55 in earnings per share (EPS) and $5.8 billion in revenue. In the same period of last year, Starbucks reported EPS of $0.56 and $5.71 billion in revenue.

Over the past three years, the total number of coffee purveyors has risen to about 3,000, an increase of 400 chains, among those with at least 10 stores. That total does not include Starbucks, which has opened nearly twice that number in the same period to reach a total of some 14,000 U.S. stores. The Starbucks store count has increased by an average of 6% a year since 2012, while the rest of the industry is growing at a rate of 8%.

Is Starbucks in trouble? Not according to a new study from Morgan Stanley cited by eMarketer. The Seattle-based company has 30 times the number of stores as its closest specialty coffee rival, Caribou Coffee, which had 405 stores at the end of 2016.

Including independent coffee stores and chains with fewer than 10 stores, which together account for another 15,000 outlets, the total U.S. coffee store count has slipped in the past two years. Zeroing in on the 900 independent and micro-chain roasters operating about 1,700 stores, Morgan Stanley’s study concluded that the number of brands has “dropped significantly” since 2013.

Starbucks actually benefits from the proliferation of coffee stores because category growth raises awareness of specialty coffee shops. The company is busy developing its high-end Reserve brand to take advantage of interest in that part of the market.

A few analysts weighed in on Starbucks ahead of the earnings report:

  • Mizhuo has a Buy rating with a $75 price target.
  • OTR Global has a Positive rating.
  • Piper Jaffray has a Buy rating with a $70 price target.
  • Cowen has an Outperform rating and a $62 price target.
  • Deutsche Bank has a Buy rating with a $67 price target.
  • BMO Capital Markets has a Hold rating.
  • Morgan Stanley has an Overweight rating with a $62 target.
  • Stifel has a Hold rating and a $58 price target.

Shares of Starbucks were last seen at $55.00, with a consensus analyst price target of $63.98 and a 52-week range of $50.84 to $64.87.