Starbucks (SBUX) Up 27% in the Past Year: More Room to Run?
Starbucks (SBUX) is well-poised on unit expansion, remodeling initiatives, aggressive product innovation and brand-building efforts. Also, emphasis on Global Coffee Alliance is encouraging.
Starbucks Corporation SBUX is poised to benefit from menu innovation, solid comps growth and expansion initiatives. Also, focus on Global Coffee Alliance bodes well.
Shares of Starbucks have rallied 27.4% in the past year compared with the industry’s 20% growth. The price performance was backed by a solid earnings surprise history. Earnings surpassed the Zacks Consensus Estimate in each of the trailing six quarters. Earnings estimates for full-year 2021 and 2022 have moved up 8.7% and 3.9%, respectively, in the past 90 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy). This indicates robust fundamentals and expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Major Growth Drivers
Menu Innovation: Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshment, health and wellness as well as tea and core food offerings. Starbucks is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages, and plant-based modifiers, including almond, coconut and soy milk alternatives. Apart from the numerous beverage innovations, Starbucks has also been making efforts to offer more nutritional and healthy products to its customers. Meanwhile, the company’s Reserve Roastery and Tasting Room elevates the coffee experience to the next level, with small-batch super-premium coffee produced using innovative coffee-brewing techniques. Starbucks’ collaboration with Beyond Meat to roll out a plant-based lunch menu in China testifies the same. Starbucks’ customers can enjoy pastas and lasagna made from Beyond Meat's plant-based beef products. It will also include meatless pork alternative known as Omnipork and popular non-dairy milk called Oatley. The new menu is available at more than 3,300 Starbucks locations in China. The companies have already partnered to roll out a plant-based sandwich to Canadian locations.
Solid Comps Growth: Starbucks has impressed investors with solid comparable sales growth. In third-quarter fiscal 2021, the company’s Americas reported comps growth of 84% following a rise of 9% in second-quarter fiscal 2021. U.S. comps rose 83% in the third quarter owing to material increase in transaction comps of 88%. Average store transactions, at the end of the quarter, was 90% of pre-pandemic levels. Going forward, the company anticipates global comparable sales to increase between 20% and 21% in fiscal 2021 compared with prior estimate of 18% and 23%. Also, it expects Americas and U.S. comparable store sales to improve in the range of 21-22% in fiscal 2021 compared with the prior estimate of 17-22%.
Expansion Initiatives: Starbucks is one of the most recognized coffee brands in the world. Management has been focused on increasing global market share by judiciously opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building. In the first nine months of fiscal 2021, Starbucks opened 635 net new stores worldwide, bringing the total store count to 33,295. The company expects to open nearly 2,150 (850 stores in Americas and 1,300 internationally) new stores and 1,100 (50 stores in Americas and 1,050 in internationally) net new stores worldwide in fiscal 2021.
Global Coffee Alliance: Starbucks and the Swiss-based food giant Nestle SA have teamed up to revitalize their coffee domains. Starbucks and Nestle announced a global marketing deal that gives the latter "perpetual rights" to market Starbucks’ products globally outside its coffee shops. Earlier, the company launched three new coffee platforms in more than 30 new markets — Starbucks by Nespresso, Starbucks by Dolce Gusto as well as Starbucks roast and ground coffee. The Global Coffee Alliance with Nestle has been a powerful partnership and the company exited 2020 as the number one brand across the entire coffee category. As of third-quarter fiscal 2021, the Global Coffee Alliance is available in 80 markets worldwide. Going forward, this alliance is likely to expand the global reach of Starbucks brands in the consumer packaged goods (“CPG’) and foodservice categories to nearly 190 countries around the world.
Other Solid Restaurant Bets
Some other top-ranked stocks in the same space are Domino's Pizza, Inc. DPZ, Chipotle Mexican Grill, Inc. CMG and Jack in the Box Inc. JACK, each carrying a Zacks Rank #2.
Domino's has a three-five year earnings per share growth rate of 12%.
Chipotle's 2021 earnings are expected to rise 137.3%.
Jack in the Box has a trailing four-quarter earnings surprise of 26.4%, on average.
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