The No. 1 Reason to Be Bullish on SBUX Stock
Starbucks Corporation (NASDAQ:SBUX) beat expectations with its earnings release for the first quarter of its 2016 fiscal year. SBUX stock reacted by dropping slightly and then posting a small recovery to trade in its monthly high zone of about $59.00 per Starbucks share. This increased by 46% in 2015, opening on January 22 at $57.55 only to climb rapidly to $59.39 after the publication of its first-quarter results the previous day.
Bloomberg analysts have set a 12-month target price of $68.30 on SBUX stock—80% of the analysts have noted it as a “Buy,” while one advised a “Sell” rating. (Source: “How High Will Starbucks Stock Keep Climbing?” Market Realist, December 2015.) Moreover, given the analysts’ conservative estimate, Starbucks stock is poised to hit an all-time record price. Any fears about Starbucks’ stock performance are overblown.
Starbucks saw its net profit fall by 30% to $687.6 million, or $0.46 per share. Analysts had forecasted $0.45 per share. Revenues of $5.37 billion indicated an 11.9% increase, but they failed to live up to expectations of $5.39 billion, according to a Thomson Reuters consensus. Most importantly, same-store sales, the key indicator of retail performance, increased by a solid eight percent during the first three months of 2016 and the stock recorded its best-ever holiday sales. (Source: Ibid.)
Starbucks Stock Remains Poised to Climb Toward a New Record-High
Could Starbucks hit $100.00 by the end of the year? It’s possible, but given the analysts’ estimate range, as noted above, a conservative, but optimistic target might be $75.00.
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The fact that stores open for more than 13 months saw sales rising by eight percent overall and nine percent in the Americas division, the largest of the group, is an indicator of the favorable scenario ahead for the Seattle-based company. Both figures are well above those expectations of analysts polled by Consensus Metrix. Meanwhile, even if Starbucks’ overall revenue fell below expectations, it should be stressed that sales in the Asia-Pacific region grew five percent on a comparable basis. Perhaps the analysts were too optimistic with their 6.1% expectations.
Reticent customers in Europe, which saw a tumultuous 2015 wrought with fears of economic meltdowns and terrorism, also put pressure on Starbucks’ sales and inevitably SBUX stock. The company’s revenues and operating profit in Europe dropped in the last quarter, which makes the 11.9% group sales increase all the more remarkable. In Europe, the Middle East, and Africa, revenue dropped six percent in the last quarter. (Source: “Starbucks Blames Paris Terror Attacks for Hurting Sales,” Bloomberg, January 21, 2016.)
Yet, even as the global situation continues to present risk, international growth will be the driver of Starbucks sales and, overall, Starbucks stock. Starbucks opened 528 new stores in 2015 and plans to make China its biggest market by 2019. It is also expanding in Europe. (Source: “What war on Christmas? Starbucks holiday sales lead to record revenue,” The Guardian, January 21, 2016.) No other coffee roaster and distributor specialist even comes close to Starbucks’ level of market presence.
Starbucks stock’s growth, meanwhile, is assured by the company’s plans to intensify the brand’s presence in its customers’ everyday lives. The 2015 financial year shows that Starbucks is on the right track. It could be a rise in shares of 46.7% recorded. The S&P 500 has to process a decline of 2.14% in comparison. Reasons for the progressive growth of the U.S. company could be projects such as its Mobile Order & Payment System, as well as the company offering delivery to large corporate customers. However, the introduction of additional food could have contributed to the success.
Starbucks Is Borrowing from Tim Horton’s
The latter was once a coffee and donut chain; over the past 15 years, it has evolved into a major fast food restaurant, while still anchored to its coffee roots.
Likewise, Starbucks has become far more than a seller of coffee beverages. The chain has already started to offer snacks and small meals and this trend should continue. This cross-selling has already become an integral part of each store, which can help promote greater loyalty from its existing visitors, while also attracting a new type of customer altogether.
Starbucks has also expanded its menu offerings and gone one further by adding alcoholic products to the menu at select locations.
For the time being, it is not surprising that Starbucks’ most sparkling sales are occurring in areas where the economy is growing at a solid pace: North America and China, whose 6.9% gross domestic product growth rate, while lower than what the market has expected, is still higher than most countries. Starbucks could also grow by forming partnerships and collaborations with local companies in order to maximize its presence in some foreign markets.
South Asia represents a new frontier and Starbucks is aiming to establish a strong presence in the emerging Asian metropolises. With this approach, the company promises long-term growth of up to 30% in Asia. (Source: “Starbucks sets sights on Asian expansion,” WARC, January 14, 2016.)
According to the company, the introduction of a mobile payment app and POS for the year 2016 in China is also planned. The majority of China’s population is already familiar with mobile payment methods and highly affine for new delivery concepts. (Source: “Starbucks to Add Thousands of Stores in China,” The Wall Street Journal, January 12, 2016.)
In the U.S. and parts of Canada, a home delivery system is in the developing stages, as many fast food restaurants are already offering initial concepts. Through a diversified range of products and the further expansion of special afternoon activities, alongside its higher-quality products, Starbucks could win the market. The prospects are good for SBUX stock.