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Consistent Growth despite Challenges By TipRanks


© Reuters. Starbucks: Consistent Growth despite Challenges

Starbucks Corporation (NASDAQ:) is one of the most iconic consumer brands in the world, counting more than 33,200 stores globally.

It roasts premium coffees and sells them together with handcrafted teas and other high-quality foods through its franchised and company-owned stores.

Starbucks Coffee is the flagship brand. The company also sells its beverages and food through several other brands including Teavana Coffee, Seattle’s Best Coffee and Ethos.

The adverse effects of COVID-19 within the retail and restaurant industry had a significant impact on Starbucks, however, they managed to maintain strong results and actually grow stronger.

Starbucks has seen a 37.3% increase in stock price over the past twelve months. However, it is still a solid dividend growth investment, due to its continuing developments. The stock is a strong investment. (See SBUX stock charts on TipRanks)

An Improving Performance

In late July, Starbucks reported its Q3 2021 results, with numbers coming in strong. The net revenues of $7.5 billion represented a 78% rise over the previous year.

The 73% increase in global comparable sales was due to 75% more comparable transactions. However, this is slightly offset with a 1 percent drop in average tickets.

COVID-19 restrictions worldwide were eased, and the return to normal spending behavior by consumers explains the huge sales increase. Starbucks’ recovery can be viewed by comparing the Q3 revenue of $7.5-billion to its history.

The adjusted earnings per shares came out at $1.01 as a result of $0.46 loss in Q3 2020 due to the one-off expenses that Starbucks had to incur during the pandemic.

Starbucks also continued its expansion of global reach in the wake of recovery. Starbucks added 352 new net stores to its global network, bringing the total number of stores in this quarter to 33,295. These stores were 50.6% company-owned and 49.4% licensed.

Management was confident enough to raise its FY2021 guidance. It expects 18%-21% global sales growth. The company also reiterated the goal of 2,150 additional store openings.

Now, the company expects net revenue of $29.1 to $29.3 trillion (previously $28.5 to $29.3billion), with adjusted earnings per share (previously $3.90 to $4).

Valuation, Dividend Growth

At its current share price, Starbucks is trading at around 35 times management’s EPS guidance. It’s significantly more than the historical stock average. Analysts expect double-digit growth in EPS over the medium term, which partially explains the premium.

Strong EPS growth over the medium-term will be sufficient to maintain Starbucks’ double digit DPS growth. Compound annual growth rate (DPS CAGR) of 12.6% for the company over three years is at 12.6%. The payout ratio is 55%, at its $1.80 annual DPS. This figure corresponds to the middle of the management’s guidance.

With Starbucks’ anticipated EPS growth, future increases should not be too difficult. While the yield currently at 1.51% doesn’t seem all that appealing, when you consider the company’s future growth prospects, this makes the stock a great addition in terms of shareholder returns potential.

Wall Street’s Take

Turning to Wall Street, Starbucks has a Moderate Buy consensus rating, based on 13 Buys, five Holds, and zero Sells assigned in the past three months. At $132.23, the average SBUX price target implies 16.6% upside.

Disclosure: Nikolaos Sismanis had no position at the time this article was published.

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