The market wasn’t particularly impressed by Starbucks Corporation (Nasdaq: SBUX) earnings last week. And while Morgan Stanley analyst John Glass says there were several things to like about Starbucks’ report, the company still has a lot to prove to long-term investors.
According to Glass, Starbucks bulls should take comfort in the company’s 2 percent same-restaurant sales growth in the first quarter. Glass says that growth rate is good enough to preserve the long-term bullish case for Starbucks.
“While there’s still plenty to pick at in results, sequential intraquarter improvement in the U.S. comps, driven by what we think are real and sustainable go-to-market strategies — and no reset in either comp or EPS outlook for the year– should keep the bear case at bay for now,” Glass says.
Glass says cost savings initiatives should help support Starbucks numbers in the second half of 2018, but other facets of the business will remain under pressure.
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“While we worry about this trend, and cost savings are not infinite, the best longer-term remedy will be sales improvement, for which at least in this quarter there is some incremental hope,” Glass says.
While Glass says the company’s first-quarter numbers were good enough to support the stock’s current market valuation, Bank of America analyst Gregory Francfort says SBUX stock could soon benefit from earnings multiple expansion.
“In our view, valuation should skew upward to reflect the scarcity of large-cap growth companies,” Francfort says.
He says Starbucks’ guidance for 3 percent U.S. same-restaurant sales growth in the second half of the year is a clear positive.
In addition, Francfort says Starbucks has a major advantage over competitors when it comes to customer loyalty and digital offerings. “We think digital and data algorithm investments will be a scale differentiator for the largest 10 to 15 restaurant brands at the expense of smaller chains and independents,” he says.
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Bank of America says Starbucks should be able to generate compound annual earnings per share growth of 12 percent as long as it can maintain unit growth of at least 8 percent and same-restaurant sales growth of at least 2 percent.
Morgan Stanley has an “overweight” rating and $72 price target for Starbucks. Bank of America has a “buy” rating and $65 target for SBUX stock.
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Analysts Are Still Optimistic About Starbucks Corporation (SBUX) Stock originally appeared on usnews.com
