A cafe that started its journey with a store in Seattle’s Pike Place Market way back in 1971 has now become synonymous with coffee itself. Starbucks Corporation (SBUX Quick QuoteSBUX - Free Report) has come a long way since its Initial public offering in 1992 and currently operates nearly 24,000 stores across 71 countries.

Starbucks commands a leading position in all coffee segments. Though second-quarter fiscal 2016 results fell slightly short of expectations, Starbucks’s operating fundamentals remain strong – solid global retail footprint, successful innovations, best-in-class loyalty program and digital offerings and rapid growth in the international markets.

Why Starbucks Is a Good Choice:

Good Rank and Solid Growth Score

Starbucks has a Zacks Rank #2 (Buy) and a favorable growth style score of ‘A.’ Back-tested results show that only stocks with a Growth Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.

New Digital Efforts Hold Promise

Retail companies are witnessing a fast shift in consumer shopping behavior away from bricks-and-mortar stores towards online shopping. Customers are consuming more food and beverages away from home and are using mobile phones for most online activities.

To leverage this growing digitalization, Starbucks is introducing many technological innovations to further strengthen its brand, enhance efficiency and in-store execution to increase profitability.

The coffee giant’s latest digital initiative, Mobile Order and Pay, is witnessing increasing usage and could prove to be a key growth driver in 2016 as adoption increases. This initiative allows customers to order before arriving at a Starbucks café and pick up the items at their preferred Starbucks outlet, thus saving time.

The company currently processes over 8 million transactions every month. Mobile Order and Pay transactions represented approximately 4% of total transactions in the last reported quarter, up 40% sequentially.

Starbucks started food and beverage delivery through its employees at New York’s Empire State building last October. The company also began testing food and beverage delivery in collaboration with on-demand delivery service, Postmates, in a few areas of Seattle last December.

To expand its loyalty program -- My Starbucks Rewards or MSR -- Starbucks formed strategic loyalty partnerships with Lyft, Spotify and The New York Times to allow MSR members to earn stars through purchases made with these third parties; thereby generating an additional revenue stream.

These initiatives are expected to quicken service, increase convenience and enhance customer loyalty, thereby driving mobile payment transactions and in turn, traffic.

CPG Differentiates Starbucks

Under its Consumer packaged goods (CPG) segment, Starbucks sells roasted whole beans and ground coffees, premium Tazo teas, a variety of ready-to-drink beverages along with Starbucks and Tazo branded K-Cup packs through grocery, specialty retailers and foodservice channels.

The business has become a fast-growing and highly profitable business for Starbucks. Globally, the company has more than 190,000 points of distribution in the CPG channels. Over the next five years, Starbucks expects to grow its Channel Development segment revenues by 60% and nearly double its operating income.

As part of this business, Starbucks has a highly successful joint venture with PepsiCo, Inc. (PEP Quick QuotePEP - Free Report) -- christened North America Coffee Partnership (NACP) -- for marketing, sale and distribution of Starbucks ready-to-drink coffee and energy beverages. Formed in 2014, NCAP grew into a more than $1.5 billion retail business offering 40 ready-to-drink Starbucks beverages at present. The companies also have a deal to launch ready-to-drink beverages in Latin America later this year. In China, Starbucks has partnered with Tingyi to launch ready-to-drink beverages later this year.

Starbucks also plans to sell Starbucks-branded Nespresso compatible pods in Europe later this year. This should help the company in expanding its single-serve offering globally.

Starbucks has also entered into a new partnership agreement with Keurig for the high-end K-Cup pods that it distributes for the latter. The agreement makes way for improved economics along with providing more flexibility to sell directly to several key alternative channels such as offices and hospitals.

Rapid International Expansion

Starbucks has stores across 40 EMEA (Europe, Middle East and Africa) markets andplans to enter new EMEA markets like Italy in 2016. Moreover, the Starbucks brand is gaining popularity with consumers across Asia as the company is increasingly investing in the Asian markets.

In the CAP (China, Asia-Pacific) region, Starbucks plans a twofold increase in the CAP store count to roughly 10,000 and threefold increase in the CAP revenues to over $3 billion by 2019.

Management believes that China and the Asia-Pacific region will drive much more meaningful business growth over the next five years supported by rapid unit growth, growing brand awareness, and increased usage of the digital/mobile/loyalty platforms.

Stocks to Consider

Investors interested in the restaurant sector may consider stocks like Famous Dave's of America Inc. (DAVE Quick QuoteDAVE - Free Report) and Dave & Buster's Entertainment, Inc. (PLAY Quick QuotePLAY - Free Report) . Both stocks sport a Zacks Rank #1 (Strong Buy).

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