Case Study: Starbucks (SBUX) stock according to high performing analysts
Key Points
Performance
Starbucks shares fell by 6.59% this week, pushing their year-to-date gains down to 6.33%. This compares poorly to the S&P 500 which is up by 8.16% during 2023 thus far.
Event & Impact
Starbucks posted its fiscal 2023 second quarter results this week, beating consensus estimates on both the top and bottom lines. During Q2, SBUX’s revenue totaled $8.7 billion, beating Wall Street’s consensus estimate by $270 million. Starbucks’ Q2 non-GAAP earnings-per-share came in at $0.74, which was $0.09/share above consensus estimates.
Noteworthy News:
Starbucks posted strong growth results in Q2, with revenue, earnings, and global same-store sales all up double digits. The company also continued to build out its global store network, adding 464 locations during the quarter. SBUX management has upheld prior guidance and is expecting to see double-digit full-year top- and bottom-line growth.
Nobias Insights
49% of recent articles published by credible authors focused on SBUX shares offer a “bearish” bias. However, five out of six credible Wall Street analysts covering SBUX believe that shares are likely to rise in value. The average price target applied to Starbucks by these analysts is $218.50, implying an upside potential of approximately 10.6% relative to the current share price of $107.16.
Bullish Take Marianne Wilson, a Nobias 4-star rated author, said, “Starbucks reaffirmed its fiscal 2023 outlook, with expected revenue growth of 10% to 12% and adjusted earnings per share growth on the low end of 15% to 20%.”
Bearish Take David Tarantino, a Nobias 5-star rated analyst, said, “The analyst said Q2 global comps/EPS came in well ahead of estimates, but they surprisingly did not raise 2023 guidance and also signaled that U.S. comps have moderated into Q3 and that the China recovery is expected to be more shallow than we had been anticipating.”
SBUX May 2023
Starbucks (SBUX) reported its second quarter earnings this week, causing the stock to fall by 6.59% during the last 5 trading sessions. Yet, even with this 6.6% post-earnings sell-off in mind, SBUX’s gains on a year-to- date basis and during the trailing 12 month period are 6.33% and 38.37%, respectively.
Due to their recent dip, SBUX shares have underperformed the broader market in 2023 thus far. The S&P 500 is now up by 8.16% on the year. However, over longer periods of time, SBUX shares have outperformed the market, posting price gains of 86.6% and 230.8% during the last 5 and 10-year periods, respectively. These results compare favorably to the S&P 500, which is up by 55.1% and 148.1% during those same periods of time.
Bullish Nobias Credible Analysts’ Opinions:
However, over longer periods of time, SBUX shares have outperformed the market, posting price gains of 86.6% and 230.8% during the last 5 and 10-year periods, respectively. These results compare favorably to the S&P 500, which is up by 55.1% and 148.1% during those same periods of time.
Although SBUX sold off after posting its second quarter earnings, the credible analysts that Nobias tracks who have received the company’s results published bullish reports. Currently, credible analysts are calling for double digit upside potential, signaling that this near-term dip could represent a long-term buying opportunity.
Marianne Wilson, a Nobias 4-star rated author, covered Starbucks’ second quarter earnings report in an article that she published this week at Chain Store Age. In her piece, Wilson noted the leadership change at Starbucks, writing, “The report was Laxman Narasimhan's first earnings report since he took the reins of Starbucks from Howard Shultz in March, following a lengthy “immersion experience” in the company.”
She quoted Narasimhan, who said, “From my immersion observations, our leadership team now has a clear line of sight into our growth headroom, as well as our opportunities to enhance margins and modernize the business, brand, partner experience and culture of Starbucks.”
Looking at the company’s operating results, Wilson said, “Excluding items, Starbucks earned $0.74 per share, beating Street estimates of $0.64 per share.” During the same quarter a year ago, SBUX’s non-GAAP earnings-per-share came in at $0.59. Therefore, the company’s fiscal 2023 $0.74/share result in Q2 represented year-over-year growth of 25.4%.
Wilson also highlighted the company’s top-line results, stating, “Net sales rose 14.2% to $8.72 billion, topping analysts’ estimates of $8.4 billion.” She continued, “Global comparable store sales rose 11% in the quarter.”
“U.S. comparable-store sales rose 12%, driven by a 6% increase in comparable transactions and a 6% increase in average ticket,” she added. Another metric that Starbucks’ management team touted was the continued growth of its digital membership program.
Wilson said, “Active members of its U.S. loyalty program increased 15% from the year-ago period to 30.8 million.” Finally, she noted that the company provided a full-year update on guidance for investors. “Starbucks reaffirmed its fiscal 2023 outlook, with expected revenue growth of 10% to 12% and adjusted earnings per share growth on the low end of 15% to 20%,” Wilson concluded.
Bearish Nobias Credible Analysts Opinions:
Dee-Ann Durbin, a Nobias 4-star rated author, also covered Starbucks’ Q2 earnings this week. She wrote an article on the retailer’s results at Yahoo finance. Durbin put a spotlight on the company’s performance in China, writing, “Same-store sales in China were up 3%, reversing a 29% decline the company saw in its October-December period due to a spike in COVID infections. It was the first time Starbucks had seen positive same-store sales in China since 2021.”
Ken Martin, a Nobias 5-star rated author, threw some cold water on Starbucks’ Chinese growth prospects in a report that he published at Fox Business this week, however. “While the China recovery was better than the company expected, growth in average weekly sales there will be at a more moderate pace in the second half, Chief Financial Officer Rachel Ruggeri said during an earnings call,” he said.
Looking at domestic sales figures, Durbin pointed out the 12% same-store sales growth in the United States and highlighted comments made by Starbucks’ CFO, Rachel Ruggeri, who said, “For the full year, Starbucks expects North American same-store sales increases in the 7-9% range”.
Durbin also points out that SBUX continues to grow its global footprint with ongoing investments into its real estate portfolio. She said, “Starbucks said it opened 464 net new stores during the quarter, including 100 in North America. As part of a larger plan to reinvigorate sales, Starbucks has been closing underperforming locations and replacing them with stores in higher-traffic areas or smaller stores that are focused on pickup or drive-thru business.” She also touched upon commentary provided by Narasimhan during the quarterly report regarding plans to increase in-store efficiencies.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
“Starbucks CEO Laxman Narasimhan said the company also continues to introduce new equipment — like hand-held cold foamers — to improve execution and speed. But he said Starbucks must do a better job simplifying its supplies and operations; he noted that the company currently has 1,500 cup and lid combinations around the world,” Durbin wrote.
Overall bias of Nobias Credible Analysts and Bloggers:
Looking at the credible analyst response to SBUX’s Q2 earnings report there have been mixed results. According to the Fly of the Wall, “Baird raised the firm's price target on Starbucks to $110 from $105 and keeps a Neutral rating on the shares. The analyst said Q2 global comps/EPS came in well ahead of estimates, but they surprisingly did not raise 2023 guidance and also signaled that U.S. comps have moderated into Q3 and that the China recovery is expected to be more shallow than we had been anticipating.” Baird’s analyst is David Tarantino, who carries a Nobias 5-star rating.
While Tarantino raised his price target on SBUX shares, his new $110 fair value estimate only represents low single digit upside to Starbucks’ current share price of $107.16. However, BTIG analyst Peter Saleh, another Nobias 5-star rated analyst, came away from the quarter with a more bullish outlook for SBUX shares.
According to the Fly of the Wall, “Saleh raised the firm's price target on Starbucks to $125 from $120 and keeps a Buy rating on the shares after its Q2 earnings beat. The analyst cites the sales and margin momentum that the company achieved in the first half of the year. BTIG also believes that the guidance at Starbucks is conservative given the return to pre-pandemic transaction levels at breakfast and double-digit comp recovery in China.”
Nobias 5-star rated analyst, David Palmer of Evercore ISI also raised his price target to $125 after examining SBUX’s Q2 results. According to the Fly on the Wall, “Evercore ISI raised the firm's price target on Starbucks to $125 from $120 and keeps an Outperform rating on the shares, which the analyst also removed from the firm's "Tactical Outperform" list. Fiscal Q2 results were stronger than expected because of sales strength around the world, but the company noted that the pace of the China sales recovery has slowed in recent weeks and as a result, together with what the firm believes is "conservatism under new leadership," FY23 guidance is unchanged. The firm is "nudging" its EPS estimate higher based on a stronger start to the year.”
Overall, 5 out of the 6 credible Wall Street analysts that the Nobias algorithm tracks who have expressed an opinion on SBUX shares believe that they’re likely to increase in value. The average price target being applied to SBUX by these credible individuals is $118.50, which implies upside potential of approximately 10.6% relative to the stock’s current price of $107.16.
The credible author community is more bearish on SBUX shares with only 44% of recent articles published by credible authors expressing a “Bullish” sentiment towards shares.
Disclosure: Nicholas Ward is long SBUX. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.