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Why Starbucks (SBUX) Was Upgraded

NEW YORK (TheStreet) -- Starbucks (SBUX) was upgraded to "outperform" from "market perform" by Wells Fargo Friday.

Starbucks gained 1.2% to $73.19 in morning trading.

Analysts Bonnie Kerzog, Jessica Gerberi, and Adam Scott said the coffee shop company appears to be entering a "new era of growth." The analysts believe the company's focus and discipline will help drive this era of growth and innovation. They write that they are impressed with "(1) SBUX's strong execution of multiple initiatives in the U.S., (2) its tremendous potential to become an international powerhouse, (3) its impressive loyalty programs and digital offerings, and (4) its long runway for growth in CPG both in the U.S. and internationally where we believe it's just getting started."

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Separately, TheStreet Ratings team rates STARBUCKS CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate STARBUCKS CORP (SBUX) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, premium valuation and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 11.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 25.1% when compared to the same quarter one year prior, rising from $432.20 million to $540.70 million.
  • STARBUCKS CORP has improved earnings per share by 24.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STARBUCKS CORP swung to a loss, reporting -$0.01 versus $1.79 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus -$0.01).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, STARBUCKS CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • You can view the full analysis from the report here: SBUX Ratings Report

Stock quotes in this article: SBUX 

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