The shares of specialty coffee maker Starbucks Corporation (SBUX) have declined by 12.7% in price over the past month to close Friday’s trading session at $100.12. In addition, it is currently trading 20.7% below its 52-week high of $126.32, which it hit on July 23, 2021. In terms of forward P/S, SBUX’s 3.60x is 205.4% higher than the 1.18x industry average. Likewise, its 4.12x forward EV/S is 202.8% higher than the 1.36x industry average.
However, SBUX reported impressive fiscal fourth-quarter results. In addition, it announced a new commitment to return $20 billion to shareholders over the next three years through share repurchases and dividends.
Also, the company expects to open nearly 2,000 new stores worldwide this year. And its leading digital platform, penetration in China, and rising consumer mobility, make its near-term prospects look bright.
Here is what I think could influence SBUX’s performance in the upcoming months:
Robust Financials
SBUX’s net revenues increased 31% year-over-year to $8.15 billion in its fourth fiscal quarter, which ended Oct. 3, 2021. The company’s operating income grew 165.5% year-over-year to $1.48 billion, while its net earnings came in at $1.76 billion, representing a 349.4% year-over-year increase. Also, its EPS was $1.49, up 351.5% year-over-year.
Favorable Analyst Estimates
For its fiscal 2022, analysts expect SBUX’s EPS and revenue to grow 77.5% and 12.3%, respectively, year-over-year to $3.44 and $32.65 billion. In addition, its EPS is expected to grow at 33.7% per annum over the next five years. Moreover, Wall Street analysts expect the stock to hit $124.16 in the near term, indicating a potential 24% upside.
High Profitability
In terms of trailing-12-month net income margin, SBUX’s 14.45% is 120.4% higher than the 6.56% industry average. Likewise, its 15.64% trailing-12-month levered FCF margin is 170.6% higher than the 5.78% industry average. Furthermore, the stock’s 16.41% and 13.38% respective trailing-12-month ROTC and ROTA are higher than the 7.54% and 5.87% industry averages.
POWR Ratings Show Promise
SBUX has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, SBUX has an A grade for Quality, which is in sync with its higher-than-industry profitability ratios.
SBUX also has a C grade for Growth and Sentiment, which is consistent with its revenue and earnings growth estimates. In addition, the stock has a C grade for Stability, consistent with its 0.82 beta.
Beyond what I have stated above, we have also given SBUX grades for Value and Momentum. Get all the SBUX ratings here.
SBUX is ranked #11 out of 44 stocks in the B-rated Restaurants industry.
Bottom Line
SBUX reported impressive fiscal fourth-quarter results despite rising COVID-19 cases and labor and supply shortages. It is well-positioned to benefit from its robust expansion efforts, digitalization, and strong demand. So, we think it could be wise to buy the dip in the stock.
How Does Starbucks (SBUX) Stack Up Against its Peers?
SBUX has an overall POWR Rating of B. One could also check out these other stocks within the Industrial - Machinery industry with an A (Strong Buy) or B (Buy) rating: Good Times Restaurants Inc. (GTIM), Dine Brands Global, Inc. (DIN), and Ruth's Hospitality Group, Inc. (RUTH).
SBUX shares fell $1.12 (-1.12%) in premarket trading Tuesday. Year-to-date, SBUX has declined -15.31%, versus a -3.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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