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Why Starbucks (SBUX) Stock Looks Like a Strong Buy at New High


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Shares of Starbucks SBUX have surged over 10% since the company posted better-than-expected quarterly earnings and revenue on January 24. Now let's dive into why the coffee powerhouse looks like a strong buy at the moment.

Overview

Starbucks' adjusted Q1 fiscal 2019 earnings jumped 15.4% to reach $0.75 a share, which blew by our Zacks Consensus Estimate of $0.65. Meanwhile, total quarterly revenues surged 9% to reach $6.6 billion and top expectations. Maybe more importantly, SBUX's same-store sales popped 4% to beat our 3% NFM estimate and outpace Q4's 2% climb.

The coffee chain's comps growth was driven by a bump in larger average ticket size. The company was also able to post same-store sales growth of 1% in China amid the broader economic slowdown that hurt the likes of Apple AAPL . Plus, Starbucks saw its rewards members surge 14% to reach 16.3 million.

Since Starbucks released its earnings, it was reported that Nestle SA NSRGY bought the rights to sell Starbucks-branded coffee and tea for roughly $7.15 billion. The move helps show Starbucks' brand power. On top of that, investors need to pay close attention to the company's continued mobile ordering and digital initiatives as they will likely prove key in its ability to stand out against rivals like Dunkin' DNKN and Costa, which Coca-Cola KO purchased last summer for $5.1 billion.

On top of that, Starbucks executives said in December that the company plans to expand delivery across the U.S. with UberEats. The firm has been testing delivery in Miami and plans to begin to offer delivery at nearly a quarter of its more than 8,000 U.S. company-operated stores in 2019. At this point, Walmart WMT , Target TGT , McDonald's MCD , and many others have started to offer delivery in the Amazon AMZN age.

Stock Price Movement

As we mentioned at the top, shares of SBUX have surged over the last few weeks, which helps it rest up over 26% in the past year. The company's recent climb also saw Starbucks hit a new 52-week and all-time high of $71.54 a share through morning trading Thursday. This is great news for investors after a roughly three-year stretch of relatively sideways movement.

Outlook & Earnings Trends

Looking ahead, the company's fiscal Q2 revenues are projected to jump 4.54% to reach $6.31 billion, based on our current Zacks Consensus Estimate. SBUX's current full-year revenues are projected to pop 6.3% to touch $26.28 billion. Peeking ahead to fiscal 2020, the company's top-line is expected to climb 7.6% above our current year estimate.

Moving onto the bottom end of the income statement, Starbucks' adjusted Q2 earnings are projected to climb 5.66% and its full-year earnings are expected to surge 12.4%. Plus, the coffee power's full-year 2020 EPS figure is expected to come in 11.3% higher than our 2019 estimate.

Maybe more importantly, Starbucks has experienced a ton of positive earnings estimate revision activity within the last 30 days for fiscal 2019 and 2020. This is a good sign because it means that analysts are more positive about the firm's long-term earnings picture. And we know that climbing earnings are linked very closing with rising stock prices.

Bottom Line

Starbucks is currently a Zacks Rank #1 (Strong Buy) based largely on its recen t earnings revision trends. On top of that, the company is trading at 24.9X forward 12-month Zacks Consensus EPS estimates. This marks a discount compared to its five-year high of 36.2X and its five-year median of 25.1X and means SBUX's valuation picture is hardly stretched, even at its new all-time high.

Let's not forget that Starbucks is a dividend payer that has raised its quarterly payout by 125% since 2015.

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report

Coca-Cola Company (The) (KO): Free Stock Analysis Report

Apple Inc. (AAPL): Free Stock Analysis Report

Nestle SA (NSRGY): Free Stock Analysis Report

Target Corporation (TGT): Free Stock Analysis Report

Walmart Inc. (WMT): Free Stock Analysis Report

Starbucks Corporation (SBUX): Free Stock Analysis Report

McDonald's Corporation (MCD): Free Stock Analysis Report

Dunkin' Brands Group, Inc. (DNKN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Stocks
Referenced Symbols: AMZN , KO , AAPL , NSRGY , TGT




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