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Add Starbucks (SBUX) to Your Portfolio Now: 5 Reasons Why

The restaurant industry has done well in 2015 so far backed by an improving economy and the resultant increase in consumer spending power. Despite the Chinese stock market debacle, the industry is expected to steer its way through the tough times backed by strong fundamentals and sales initiatives. The second half of a year always holds more promise than the first, primarily supported by the holiday season.

In the restaurant sector, Starbucks CorporationSBUX might be an interesting option for investors right now.

Why Starbucks is a Good Choice?

Good Rank and Solid Growth Score : Starbucks has a Zacks Rank #2 (Buy) and a favorable growth style score of 'A'. The Growth Style Score combines conventional growth metrics with a thorough analysis of the company's income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Back-tested results show that only stocks with a Growth Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.

Rising Share Price : Starbucks' shares have had a good run this calendar year, gaining 38% year-to-date. With a market cap of almost $83 billion, the Seattle, WA-based coffee chain is gaining momentum from its extensive global retail footprint, successful innovations, best-in-class loyalty program, digital offerings and rapid growth in the international markets.

Exceptional Sales Performance, Positive Outlook for Fiscal 2016 : Sales growth was exceptional over the past two quarters driven by solid global traffic trends while profits remained strong, despite a significant increase in investments.

We believe that digital efforts like Mobile Order & Pay and delivery services, new third-party loyalty partnerships, food and beverage innovation, better food attachment, Starbucks Reserve premium coffees and Teavana tea should fuel stronger sales trend in fiscal 2016.

Better top-line performance backed by a range of sales drivers and various cost saving initiatives should boost earnings, going ahead.

New Digital Efforts : Starbucks enjoys a leading position in digital, card, loyalty and mobile capabilities. Its new digital technologies, like Mobile Order & Pay, are showing positive early results.

The Mobile Order & Pay service was launched last year and is now available in all company-operated outlets in the U.S. - more than 7,400 locations. This initiative allows customers to order before arriving at a Starbucks café and pick up the items at their selected Starbucks store, thus saving time.

The company also expects to introduce food and beverage delivery in collaboration with on-demand delivery service, Postmates, in Seattle and through its own employees in specific office buildings of New York City, like the Empire State building, in the second half of 2015. These initiatives are expected to quicken service, increase convenience and enhance customer loyalty thereby driving mobile payment transactions and spurring traffic.

In order to expand its loyalty program, Starbucks formed strategic loyalty partnerships with third-parties like Lyft, Spotify and The New York Times. Per the deals, loyalty program members can earn stars for purchases made through these third parties, thereby generating an additional revenue stream.

Strong International Performance : Over the past two years, management has successfully turned its European business around by improving customer experience through innovative store designs, upgraded products and growing margins through process and supply chain efficiencies. Moreover, the Starbucks brand is gaining popularity across Asia as the company stepped up investments in these markets. The China and Asia-Pacific (CAP) region delivered 20 consecutive quarters of more than 20% revenue growth. Management believes that this region will drive much more meaningful business growth over the next five years supported by rapid unit growth, growing brand awareness, and increased usage of the mobile/loyalty platforms.

Stocks to Consider

Investors interested in the restaurant sector may also consider stocks like Bob Evans Farms, Inc. BOBE , Carrols Restaurant Group, Inc. TAST and Dave & Buster's Entertainment, Inc. PLAY . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

STARBUCKS CORP (SBUX): Free Stock Analysis Report

BOB EVANS FARMS (BOBE): Free Stock Analysis Report

CARROLS RESTRNT (TAST): Free Stock Analysis Report

DAVE&BUSTRS ENT (PLAY): 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.


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

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