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The price of coffee continues to soar, but that hasn't stopped Starbucks Corporation (SBUX - Analyst Report) from delivering excellent financial results. The company recently reported solid fourth quarter results for fiscal year 2011 driven by strong same-store sales growth both domestically and abroad.

The operating margin continues to expand too, as rising commodity costs are more than offset by the leveraging of its fixed expenses.

Analysts raised their estimates for both 2012 and 2013 after better than expected Q4 results, sending the stock to a Zacks #2 Rank (Buy).

Fourth Quarter Results

Starbucks recently reported results for its fiscal 2011 fourth quarter. Earnings per share came in at 37 cents, beating the Zacks Consensus Estimate by a penny. It was a 16% increase over the same quarter in 2010.

Total net revenues jumped 15% year-over-year to $3.032 billion, ahead of the Zacks Consensus Estimate of $2.938 billion. Same-store sales jumped a stellar 9%, driven by a 6% increase in traffic and a 3% rise in average ticket. In the U.S., same-store sales were up a remarkable 10%.

Meanwhile, the operating margin expanded 60 basis points to 13.8% as higher commodity costs were more than offset by the leveraging of its fixed expenses.

Outlook

Analysts revised their estimates higher for both 2012 and 2013 following strong Q4 results, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts expect strong growth for Starbucks over the next few years.

The Zacks Consensus Estimate for 2012 is $1.82, representing 20% growth over 2011 EPS. The 2013 consensus estimate is $2.20, corresponding with 21% EPS growth.

Analysts expect much of this growth to be driven by overseas expansion and continued same-store sales growth.

Dividend

Starbucks has a strong balance sheet and generates significant free cash flow, which it is using to buy back stock and pay a dividend. In fiscal 2011, the company spent $556 million buying back its common stock, nearly double what it spent last year.

Starbucks also initiated a regular quarterly dividend in early 2010 and has raised it twice since then. It currently yields 1.5%.

Valuation

Shares don't seem like a screaming bargain at 23x forward earnings, but it is a discount to its 10-year median of 31x. Its PEG ratio is 1.4 based on a reasonable 5-year EPS growth rate of 16.8%.

The Bottom Line

With strong earnings growth projections, rising earnings estimates and shareholder-friendly management, Starbucks offers investors plenty of growth and income potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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