is scheduled to report quarterly earnings after the market close on Thursday. Analysts are expecting the coffee shop chain to benefit from new product launches and international growth.
Analysts expect Starbucks to report a fiscal third-quarter profit of 34 cents a share, compared with a profit of 27 cents in the year-ago quarter. Revenue is estimated to increase to $2.85 billion from $2.6 billion a year ago, according to a poll of analysts by Thomson Reuters. Investors will be keyed in to the effects of elevated coffee and food prices. Analysts are expecting Starbucks to benefit from several new food offerings and growth in its Via instant coffee and packaged coffee business.
The following is taken from a fiscal second-quarter report published by
, an independent-research unit of
that uses a quantitative model to evaluate stocks.
Starbucks improved earnings per share by 21.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Starbucks increased its bottom line by earning $1.24 versus 52 cents in the prior year. This year, the market expects an improvement in earnings ($1.50 versus $1.24).
We rate Starbucks a buy. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. Our model has a price target of $53 on shares of Starbucks, offering the potential for 32% upside from current levels.
The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows low profit margins.
The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, Starbuck's return on equity significantly exceeds that of both the industry average and the S&P 500.
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Starbucks' debt-to-equity ratio is very low at 0.13 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.27, which illustrates the ability to avoid short-term cash problems.
From a valuation perspective, Starbucks' current price-to-earnings ratio indicates a significant discount compared to an average of 62.77 for the Hotels, Restaurants & Leisure industry and a significant premium compared to the S&P 500 average of 16.38. Conducting a second comparison, its price-to-book ratio of 6.97 indicates a significant premium versus the S&P 500 average of 2.21 and a premium versus the industry average of 6.11. The current price-to-sales ratio is well above the S&P 500 average, but below the industry average.
Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser. Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.