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S&P Lifts Starbucks' (SBUX) Rating on Solid Performance
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Coffee chain giant Starbucks Corporation (SBUX - Free Report) was upgraded by S&P Global Ratings to A from A- on solid operating performance and financial stability.
The agency remains impressed with Starbucks’ performance and credit protection metrics that are expected to continue over the long term. The firm does not expect the company's strategies for growth and financial policy plans to change following the recent announcement of a repositioning of its management team.
The agency also remains hopeful about Starbucks’ expansion strategy, both domestically and internationally. The company has successfully expanded its overseas presence with significant store growth in China. Notably, Starbucks international stores now account for 46% of the total store count, up from 38% four years ago.
Apart from the growth strategies, the agency was positive on the company’s inorganic drive. It believes that the acquisitions of La Boulange and Teavana have widened its exposure to food products, particularly in the U.S. market, where food revenues account for nearly 20% of the U.S. revenues.
Further, Starbucks’ stable outlook boosted the views of the agency, allowing it to look at these factors contributing to solid margin and cash flow growth. The agency added, “We expect the company to use modest amounts of debt to offset absolute profit growth, the proceeds of which will be used to buy back shares.”
What's Going on at Starbucks?
It is worth mentioning that Starbucks concluded fiscal 2016 on a solid note. The company reported better-than-expected results in the fourth quarter with earnings and revenues increasing 30.2% and 16% year over year, respectively, buoyed by strong sales and margin expansion (up 180 bps), partially offset by increased partner investments. Higher sales in the U.S. and China/Asia Pacific division have counterbalanced a slowdown in the Europe, Middle East, and Africa (“EMEA”) segment.
We note that Starbuck’s shares have been outperforming the broader Zacks categorized Retail-Food & Restaurant industry over the past three months. While the stock has gained nearly 9.3%, the broader market had witnessed 4.7% growth in the same time period.
Starbucks is one of the most recognized coffee brands in the world. The company’s solid execution of several initiatives in the U.S., potential to be an international powerhouse in CPG and retail, along with best-in-class loyalty programs and digital offerings are expected to drive profits in fiscal 2017.
The Zacks Consensus Estimate for Cheesecake Factory’s 2016 earnings moved up 3.3% over the last 60 days. For the full year, earnings are expected to improve 19.5%.
The Zacks Consensus Estimate for Cracker Barrel’s fiscal 2017 earnings climbed 2.1% over the last 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 2.96%.
Domino's earnings surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 1.39%. Further, for 2016, EPS is expected to grow 23.1%.
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S&P Lifts Starbucks' (SBUX) Rating on Solid Performance
Coffee chain giant Starbucks Corporation (SBUX - Free Report) was upgraded by S&P Global Ratings to A from A- on solid operating performance and financial stability.
The agency remains impressed with Starbucks’ performance and credit protection metrics that are expected to continue over the long term. The firm does not expect the company's strategies for growth and financial policy plans to change following the recent announcement of a repositioning of its management team.
The agency also remains hopeful about Starbucks’ expansion strategy, both domestically and internationally. The company has successfully expanded its overseas presence with significant store growth in China. Notably, Starbucks international stores now account for 46% of the total store count, up from 38% four years ago.
Apart from the growth strategies, the agency was positive on the company’s inorganic drive. It believes that the acquisitions of La Boulange and Teavana have widened its exposure to food products, particularly in the U.S. market, where food revenues account for nearly 20% of the U.S. revenues.
Further, Starbucks’ stable outlook boosted the views of the agency, allowing it to look at these factors contributing to solid margin and cash flow growth. The agency added, “We expect the company to use modest amounts of debt to offset absolute profit growth, the proceeds of which will be used to buy back shares.”
What's Going on at Starbucks?
It is worth mentioning that Starbucks concluded fiscal 2016 on a solid note. The company reported better-than-expected results in the fourth quarter with earnings and revenues increasing 30.2% and 16% year over year, respectively, buoyed by strong sales and margin expansion (up 180 bps), partially offset by increased partner investments. Higher sales in the U.S. and China/Asia Pacific division have counterbalanced a slowdown in the Europe, Middle East, and Africa (“EMEA”) segment.
We note that Starbuck’s shares have been outperforming the broader Zacks categorized Retail-Food & Restaurant industry over the past three months. While the stock has gained nearly 9.3%, the broader market had witnessed 4.7% growth in the same time period.
Starbucks is one of the most recognized coffee brands in the world. The company’s solid execution of several initiatives in the U.S., potential to be an international powerhouse in CPG and retail, along with best-in-class loyalty programs and digital offerings are expected to drive profits in fiscal 2017.
Zacks Rank & Key Picks
Starbucks currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include The Cheesecake Factory Incorporated (CAKE - Free Report) , Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) and Domino's Pizza, Inc. (DPZ - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Cheesecake Factory’s 2016 earnings moved up 3.3% over the last 60 days. For the full year, earnings are expected to improve 19.5%.
The Zacks Consensus Estimate for Cracker Barrel’s fiscal 2017 earnings climbed 2.1% over the last 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 2.96%.
Domino's earnings surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average beat of 1.39%. Further, for 2016, EPS is expected to grow 23.1%.
"Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>"