Starbucks Meets Q2 Expectations, Valuation Still Too 'Venti' For Some Investors

Analysts at Stephens maintain an Equal-Weight rating on Starbucks Corporation SBUX's stock with an unchanged $58 price target after the coffee chain reported its fiscal second-quarter earnings report.

Stephens' Will Slabaugh commented in a research report that Starbucks' earnings per share of $0.45 was a penny better than expected, while Americas same-store-sales growth of 3.0 percent matched his estimate but fell short of the 3.5 percent the consensus estimate was calling for.

Americas In Review

Slabaugh noted Starbucks' food mix hit its highest mix ever since the launch of the La Boulange. Food delivered 200 basis points, and beverages contributed another 100 basis points.

Starbucks' iced beverage platform has seen increased success through a double-digit growth coming from espresso beverages, coffee and tea.

Slabaugh pointed out Starbucks' noted an acceleration of same-store sales growth at the end of the quarter in March and into April; throughput and company initiatives positively impacted sales. As such, the company feels confident it can hit its target of a mid-single digit comp growth throughout the fiscal year.

Starbucks also highlighted progress in peak transaction throughput in its mobile order and pay system. In fact, this is beginning to improve previously softened sales but needs to be monitored closely as mobile order pay accounts for around 20 percent of peak hour transactions.

Finally, the analyst acknowledged that investors have valid reason to be concerned about Starbucks' ability to demonstrate improvements on the top-line but easing compares in the third and fourth quarter, along with momentum in product innovation may limit downside in the stock.

Bottom line, Slabaugh remains positive on Starbucks' brand over the long term, but with the stock trading at 27x 2017 earnings per share estimate, investors are better off waiting for a more attractive entry point.

In Friday's pre-market session, shares were down 4.5 percent at $58.54.

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