Analysts React To Starbucks' Brewing Q4 Success

Starbucks Corp. SBUX posted strong fourth-quarter results Thursday, reporting earnings per share of 62 cents per share, beating a 60-cent estimate. Starbucks also topped revenue estimates, raking in $6.3 billion against an expected $6.27 billion.

The Analysts

Bank of America Merrill Lynch analyst Gregory R. Francfort maintained a Buy on Starbucks and raised the price objective from $64 to $68.
Morgan Stanley analyst John Glass maintained an Equal-weight rating and raised the price target from $59 to $64.
Stephens analyst Will Slabaugh maintained an Equal-Weight rating and increased the price target from $53 to $62.
Wedbush analyst Nick Setyan maintained a Neutral rating and raised the price target from $53 to $64.
William Blair analyst Sharon Zackfia maintained an Outperform rating.

Nestle Alliance

Starbucks updated its guidance for the Nestle S A/S ADR NSRGY partnership, which will now go into effect in 2020 rather than 2021, said Stephens' Slabaugh.

“As a reminder, earlier this year in May SBUX announced that it would be forming a global coffee alliance with Nestle to accelerate and grow the global reach of SBUX’s CPG and foodservice businesses. As part of the agreement, Nestle obtains the rights to market, sell and distribute SBUX’s packaged coffee and tea in all global at-home and away-from-home retail channels.”

Loyalty Program

SBUX was able to execute better contributions from My Starbucks Rewards, said BofA's Francfort.

“We believe the future SBUX U.S. opportunity will be primarily driven by customer frequency supported by digital engagement rather than through new customer acquisition, which lends itself to a slower store growth and greater focus on the existing base.”

This suggests that Starbucks expects to draw more customers into its loyalty program through a two-step process, beginning with a digital relationship and shifting to a full relationship, the analyst said.

2019 Guidance

Wedbush's Seytan anticipates positive initial 2019 guidance despite fears surrounding net unit growth. Conversely, new digital initiatives and quarter-to quarter consistency should drive 3-percent U.S. growth next year, he said.

“Given we are cautiously optimistic these initiatives could contribute to a step-up in FY19 SSS growth, we increase our FY19 Americas SSS growth estimate to 3.5 percent from 2.5 percent.”

Traffic

U.S. same-store sales growth amounted to 4 percent, ahead of the 3-percent consensus, said Morgan Stanley's Glass. Q4 results demonstrated stability for investors, but failed to prove that the business is fixed, he said.

“Like much of the rest of the QSR industry, traffic is still lacking,and if one views Q3's weakness as an anomaly, not much has yet changed over the last six quarters," the analyst said.

When better Chinese numbers are also taken into consideration, "there appears to be a greater stability to the business than ... just a quarter ago."

Comps

In the U.S., beverage sales continued to be the main driver of comp growth, said William Blair's Zackfia.

"China benefited from the rollout of a new “Coffee Meets Ice Cream” platform to over 1,000 stores that drove two points of comps. Starbucks’ partnership with Alibaba is off to a good start, with delivery already in Beijing, Shanghai and 11 other cities through the Ele.me platform since launching in September, with 2,000 stores across 30 cities targeted by calendar year-end."