Even after the "anomaly" in Starbucks' (SBUX) - Get Report third-quarter results -- the disappointing 4% growth in U.S. same-store sales -- Goldman Sachs (GS) - Get Report is putting the stock on its Americas Conviction List.
The major problem in the quarter appeared to be a one-time shift in how the coffee chain rewards regular customers, Goldman analysts said.
Seeing a source of opportunity, the Goldman analysts said they believe "that comps can re-accelerate into [fiscal fourth quarter], and favorable valuation vs. the S&P leaves room for multiple expansion as a result."
The move by the analyst team follows mixed quarterly results for the Seattle-based company. Starbucks' adjusted earnings of 49 cents per share just barely topped Wall Street's forecasts, while revenue of $5.24 billion was short of analysts' predictions of $5.34 billion. The stock was gaining slightly during midday trading Tuesday at around $58.42. (Starbucks is also a holding in Jim Cramer's Action Alerts PLUS portfolio).
But this was the first time in 25-straight quarters that the company did not see same-store sales growth of more than 5%. Nevertheless, the analysts said the "underlying comp algorithm is not broken," citing the company's change in its loyalty program as the major disruptor for the quarter.
"The combination of food and beverage was near all-time highs while 'other' decelerated from 4% to 0%," the analysts wrote in a research note Tuesday.
During the third quarter, Starbucks began executing a strategic shift of its loyalty program to a spend-based model from a frequency-based model. In a conference call following the quarterly results, CEO Howard Schultz said the shift was a "one-time event, a once-on-a-decade change built on carefully vetted analysis that showed that a spend-based program would best reward our most loyal customers."
With the "loyalty noise" in the past, Goldman's research analysts said they believe Starbucks is in position to re-accelerate.
"SBUX is now in a position to tap into a pipeline that includes driving [mobile oriented applications platform] adoption, refined suggestive selling in the app, and better 1-1 marketing capabilities," the Goldman analysts said. They expect comparable sales to reach 7% 12-months from now.
Action Alerts PLUS portfolio manager Jim Cramer and director of research Jack Mohr already seized the SBUX stock opportunity. Cramer and Mohr said in a note to subscribers that "this was the first quarter in recent memory where Starbucks' expectations were muted." They added 300 shares on Wednesday, noting that investors had already priced in the relative earnings risk heading into the quarter.
The AAP portfolio managers reiterated their price target of $68, adding that they "believe the company is set up well for growth over the long term."
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long SBUX stock.