Starbucks Stock up 13% Over Last Six Months. What’s Next?

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SBUX: Starbucks logo
SBUX
Starbucks

[Note: Starbucks’ fiscal year 2022 ended October 2, 2022]

After a 13% growth over the last six months, at the current price of around $99 per share, we believe Starbucks stock (NASDAQ: SBUX), the world’s leading roaster, marketer, and retailer of specialty coffee worldwide is appropriately priced. SBUX stock has increased from around $88 to $99 in the last six months, largely outperforming the broader indices, with the S&P growing only marginally over the same period. Starbucks has a clear advantage with regard to name recognition. The company’s strength in digital orders helped it rebound quickly from the pandemic setback. The business now has 30.4 million ( as of Q1 2023) 90-day active rewards members in the U.S., up 15% year-over-year (y-o-). As a further testament to the strength of the brand, customers loaded their accounts with $3.3 billion during the fiscal first quarter. However, we expect the company’s stock to remain at current levels in the near to medium term as its fastest-growing region, China, was decimated by the Covid lockdowns. And when restrictions eased, cases of the disease started spiking. Consequently, comps in China, where there are currently 6,090 Starbucks stores, were down 29% in Q1.

The coffee king’s adjusted revenue rose 8% year-over-year (y-o-y) to a record $8.7 billion in Q1 2023, which was still below Wall Street estimates by $70 million. On a global level, comps rose 5% thanks to a higher average transaction size. The U.S. saw 10% growth in comp sales and the international market comps were up double-digits internationally (excluding China). Still, higher labor costs and growth-related spending weighed on Starbucks’ profitability in the first quarter. That said, its diluted earnings per share of $0.74 (up 7% y-o-y) missed analysts’ expectations by 2 cents.

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Starbucks furthered its relentless global expansion. The company opened 459 net new stores during the first quarter of 2023, bringing its total store count to 36,170 locations worldwide. Out of the total, 51% of the stores are company-operated with the rest being licensed. The company believes the business will have 55,000 locations worldwide by 2030. The important question here is can the brand continue to expand since it is already ubiquitous? The coffee giant’s management could likely be overly optimistic about its long-term expansion prospects.

We forecast Starbucks’ Revenues to be $36.1 billion for the fiscal year 2023, up 12% y-o-y. Looking at the bottom line, we now forecast the earnings per share to come in at $3.45. Given the changes to our revenues and EPS forecast, we have revised our Starbucks’ Valuation to $103 per share, based on a $3.45 expected EPS and a 29.9x P/E multiple for the fiscal year 2023 – almost 4% higher than the current market price.

Despite macroeconomic headwinds and inflation, Starbucks reiterated its fiscal 2023 financial targets of 11% revenue growth (at the midpoint) and adjusted EPS growth of at least 15%. Starbucks expects its U.S. comparable sales to grow by as much as 9% in 2023. It also anticipates its sales in China will rebound as the country eases its Covid restrictions. Additionally, Starbucks intends to expand its global store count by roughly 7%, fueled by growth in its international markets.

It is helpful to see how its peers stack up. Check out how Starbucks Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 SBUX Return -3% 0% 79%
 S&P 500 Return -3% 1% 72%
 Trefis Multi-Strategy Portfolio -4% 2% 222%

[1] Month-to-date and year-to-date as of 3/13/2023
[2] Cumulative total returns since the end of 2016

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