Starbucks’ Price Target Updated After 2-For-1 Split

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SBUX: Starbucks logo
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American coffee giant Starbucks Corporation (NASDAQ: SBUX) announced a 2-for-1 stock split on March 18. [1] A stock split is a corporate financial decision that increases the number of outstanding shares of a company, and, in turn, diminishes its stock price, in the same proportion. Therefore, the company’s market capitalization — and its value — remains the same. A 2-for-1 stock split is a scenario where each shareholder receives an additional share for each share held, but the value of each of their shares is halved. (Just like making change and receiving two $5 bills for a $10 bill.) As a result, the two shares now held equal the original value of the one share previously held.

Starbucks’ shareholders, who held the stock as of March 30, got one additional share for each share held earlier. The new shares were payable on April 8 and the stock started trading after the split on April 9. Starbucks’ stock ended the trading day on Wednesday at $95.23. [2] After adjusting for the 2-for-1 stock split, Trefis estimates the stock price for the company at $45.12.

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This is the sixth stock split in the company’s history and the first stock split since October 2005. According to the company’s CEO, Howard Schultz, this stock split decision indicates the company’s increasing shareholder value, and this might enhance the liquidity of the shares bringing them to a lower and attractive price. SBUX stock price rose more than 30% in the last 12 months and rallied roughly 18% in the past quarter. [3]

A stock split is a common activity for a company as big as Starbucks, as market capitalization remains fairly constant and shareholders own more shares at lower prices. Generally, a lower priced stock is more attractive to a wider range of buyers. If this stock split gets the same response, the stock price might witness a mild appreciation, which might eventually lead to an increase in the total market valuation of the company.

Starbucks reported strong numbers in its December ended quarter (Q1 2015), with an impressive 13% year-over-year (y-o-y) increase in net revenues to $4.8 billion, with a significant contribution by each segment. [4] Moreover, the company is scheduled to release its Q2 2015 financial results on April 23, 2015. The company has also provided a reconciliation of GAAP to non-GAAP measures on a split-adjusted basis. [5] Starbucks updated its GAAP and non-GAAP EPS targets to GAAP EPS of $0.32 and a non-GAAP EPS range of $0.32 to $0.33 for Q2 2015. Furthermore, the full fiscal year 2015 EPS targets were updated to GAAP EPS range of $1.77 to $1.79, and a non-GAAP range of $1.55 to $1.57. No other fiscal year 2015 targets were updated or reaffirmed.

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Notes:
  1. Starbucks Investor relations []
  2. Starbucks Stock []
  3. REF: 2 []
  4. Starbucks Q1 2015 earnings call transcript []
  5. REF: 1 []