Why This Starbucks Analyst Says Coffee Giant's 2021 Guidance Is Conservative

Coffee chain Starbucks Corporation SBUX guided for 2021 EPS to be in a range of $2.70 to $2.90, but the company should outperform expectations, according to Wedbush.

The Starbucks Analyst: Nick Setyan upgraded Starbucks from Neutral to Outperform with a price target lifted from $108 to $124.

The Starbucks Thesis: Starbucks' management team kept its full-year 2021 guidance unchanged even after reporting margin upside in the first quarter, Setyan said in the upgrade note. But the company did note that a revision may come when it has more visibility into future sales.

Regardless of management's stance, it is "difficult to bet against sustained momentum" in the U.S. and China, even beyond 2021, the analyst said.

The coffee chain has gained a better understanding of the spending habits of customers while stores with drive-thrus with over 4-minute wait times are already comping positively, he said. 

Related Link: Starbucks Is Perking Up With Trends 'Moving Strongly In The Right Direction'

The chain is also taking steps to right-size itself for a post-COVID-19 environment and has a menu offering that is as "compelling as ever," Setyan said. 

"We find it difficult to point to factors that may derail an MSD annual SSS growth trajectory beyond FY21."

Wedbush is lifting its 2021 EPS estimate from $2.87 to $2.90, 2022 EPS estimates move from $3.43 to $3.48 and 2023 estimates are being upped from $3.83 to $3.92.

The revised $124 price target is based on 31.5 times P/E on 2023 EPs estimates and represents a 15% premium to the stocks' pre-coronavirus, five-year median forward P/E of 27.3 times.

SBUX Price Action: Shares of Starbucks were down 0.26% at $107.34 at last check Friday.