Analyst’s Report Highlights a Strong Cuppa but with Mixed Beans for Starbucks

Credit Suisse (SIX:CSGN) analysts forecasted a strong cuppa for Starbucks (NASDAQ: SBUX), increasing its target price at $116 from $114 and increasing EPS in 2022 & 2023.

Starbucks reported FQ1/2021 financial results for the quarter ended December 27, 2020, and reported numbers that demonstrated its confidence about a stable recovery.

Comparable Store Sales Down Overall but Up in China

Starbucks reported FQ1/2021 US Same-Store Sales (SSS) down 5%, with analysts noting SSS for drive-thru stores, which makes up 60% of asset base, positive during the quarter. Analysts continued that the US recovery is on track with SBUX FQ1/2021 earnings continuing to expect a full sales recapture by the end ofFQ2/2021, supporting its guide for FQ2/2021 US SSS of an increase of 5 to 10%.

In addition, Starbucks reported Comparable Store Sales up 5% in China with analysts noting FQ2/2021 SSS guide of almost 100% indicating that Starbucks foresees China to fully return to the previous sales levels. This is significant because the company’s stores in the U.S. and China make up 61% of Starbucks’ global portfolio at the end of the FQ1/2021, with 15,340 in the U.S. and 4,863 stores in China.

In its report, Starbucks’ financial results also showed substantial margin improvement from the previous quarter. The company posted FQ1/2021 GAAP EPS of $0.53 and Non-GAAP EPS of $0.61, surpassing its earlier guidance of $0.55 a share, but lower than the earnings of $0.79 per share in the previous year.

The company also reported that its consolidated net revenues of $6.7 billion declined 5% from the previous year due to the COVID-19 impact.

Analysts Remain Positive but Also “Conservative”

Considering all the above, the Credit Suisse analysts wrote that Starbucks’ early FQ2/2021 U.S. SSS comparison continued variable, with January up 7%, February up 9%, before being down the next month 19%. Additionally, the analysts’ report highlighted that while the company will lose two key executives – CFO Pat Grismer’s to retirement and COO Roz Brewer’s departure to the WBA, they are confident of the company’s strong bench to execute near-term and long-term plans.

However, analysts said that in spite of the EPS beat in FQ1/2021, Starbucks reiterated its F2021 EPS guidance of $2.70-2.90, citing ongoing uncertainty, with plans to update guidance in FQ2/2021. Analysts continued that they see FQ2/2021 & F2021 EPS guidance as conservative.

Thus, while still staying strong, this uncertainty means that it would be a mixed bag of beans for the coming fiscal year for the multinational coffee house as Starbucks.

So, what other factors we should be considering? In its report, the company reported that Starbucks Rewards Membership in the U.S. touched 21.8 million, which increased 15% year over year. This is substantial, analysts observed, as this is more than the pre-COVID numbers with Starbucks Rewards having a share of 50% of US company sales.

Starbucks added 278 new stores in FQ1/2021, reporting 4% year-over-year unit growth, concluding the period with a record 32,938 stores worldwide, out of which 51% made up the company-operated and 49% were licensed.

Analysts Increase Estimates

To conclude, analysts’ estimate changes remain F2021 EPS of $2.90 while pushing up the F2022/F2023 EPS estimates to $3.57/$4.08 respectively, from $3.53/$4.01 earlier.

The valuation by Credit Suisse increased the target price to $116 from $114 earlier on the basis of approximately 31.5x its next twelve month (NTM) EPS.

The risks to analysts’ $116 target price and outperform rating are food safety, market competition, health epidemics, and foreign currency fluctuations.

Starbucks is the leading American multinational chain of coffee houses and roastery, retailer, and marketer of specialty coffee in 75 countries. The company’s market cap stands at $133.26 billion, as of December 31, 2021.

For more information about the research report, contact Credit Suisse’s sales representative or go to Credit Suisse PLUS.