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Should You Buy Starbucks (SBUX) Stock Ahead of Earnings?
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Shares of Starbucks (SBUX - Free Report) battled into the green on Wednesday afternoon amid up-and-down trading throughout the market, with investors juggling between solid earnings growth and concerns about rising Treasury yields as bullish and bearish catalysts. Nevertheless, with a consumer company the size of Starbucks set to report its latest quarterly results on Thursday, investors will want to be prepared.
Starbucks grabbed headlines recently when its CEO decided to close all U.S. locations for mandatory racial bias training after a troubling profiling incident at one of its stores. But that closure will not happen until May, and investors will want to be ready for the coffee giant’s second quarter fiscal 2018 report this week.
So what should investors expect when Starbucks announces its Q2 results on Thursday afternoon? Let’s take a closer look.
Latest Outlook and Valuation
According to our latest Zacks Consensus Estimates, analysts are expecting Starbucks to report earnings of $0.53 per share and revenue of $5.90 billion. These results would represent year-over-year growth rates of 17.8% and 11.4%, respectively.
As we near its report date, Starbucks is trading at about 21.7x forward 12-month earnings. Over the past year, its Forward P/E has been as high as 25.1 and as low as 20.7. It has traded with a median forward earnings multiple of 23.2x in that time. The company’s industry peers are currently sporting an average Forward P/E of 21.0. Investors might conclude that SBUX is trading at a slight premium to its industry but remains on the low end of its recent valuation range.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that Starbucks surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Starbucks is currently sporting a Zacks Rank #3 (Hold) and an Earnings ESP of -0.3%. This means that the most recent estimates have been lower than the consensus. In other words, our model is not conclusively calling for a beat.
Surprise History
Another important thing to consider ahead of Starbucks’ report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The coffee retailer is a respectable earnings performer, having met or surpassed estimates in each of the trailing nine quarters.
However, we prefer to judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. Over the course of its recent streak, Starbucks has moved higher in just three of these windows.
Bottom Line
Starbucks is a bit pricier than the broader market, although its ability to witness double-digit growth on the top and bottom line this year might warrant that premium. Either way, earnings season tends to be a volatile time for the stock, and investors will be interested in the company’s guidance more so than anything else.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!
Investor Alert: Breakthroughs Pending
A medical advance is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating substantial revenue, and even more wondrous products are in the pipeline.
Cures for a variety of deadly diseases are in sight, and so are big potential profits for early investors. Zacks names 5 stocks to buy now.
Image: Bigstock
Should You Buy Starbucks (SBUX) Stock Ahead of Earnings?
Shares of Starbucks (SBUX - Free Report) battled into the green on Wednesday afternoon amid up-and-down trading throughout the market, with investors juggling between solid earnings growth and concerns about rising Treasury yields as bullish and bearish catalysts. Nevertheless, with a consumer company the size of Starbucks set to report its latest quarterly results on Thursday, investors will want to be prepared.
Starbucks grabbed headlines recently when its CEO decided to close all U.S. locations for mandatory racial bias training after a troubling profiling incident at one of its stores. But that closure will not happen until May, and investors will want to be ready for the coffee giant’s second quarter fiscal 2018 report this week.
So what should investors expect when Starbucks announces its Q2 results on Thursday afternoon? Let’s take a closer look.
Latest Outlook and Valuation
According to our latest Zacks Consensus Estimates, analysts are expecting Starbucks to report earnings of $0.53 per share and revenue of $5.90 billion. These results would represent year-over-year growth rates of 17.8% and 11.4%, respectively.
As we near its report date, Starbucks is trading at about 21.7x forward 12-month earnings. Over the past year, its Forward P/E has been as high as 25.1 and as low as 20.7. It has traded with a median forward earnings multiple of 23.2x in that time. The company’s industry peers are currently sporting an average Forward P/E of 21.0. Investors might conclude that SBUX is trading at a slight premium to its industry but remains on the low end of its recent valuation range.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that Starbucks surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Starbucks is currently sporting a Zacks Rank #3 (Hold) and an Earnings ESP of -0.3%. This means that the most recent estimates have been lower than the consensus. In other words, our model is not conclusively calling for a beat.
Surprise History
Another important thing to consider ahead of Starbucks’ report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The coffee retailer is a respectable earnings performer, having met or surpassed estimates in each of the trailing nine quarters.
However, we prefer to judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. Over the course of its recent streak, Starbucks has moved higher in just three of these windows.
Bottom Line
Starbucks is a bit pricier than the broader market, although its ability to witness double-digit growth on the top and bottom line this year might warrant that premium. Either way, earnings season tends to be a volatile time for the stock, and investors will be interested in the company’s guidance more so than anything else.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Investor Alert: Breakthroughs Pending
A medical advance is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating substantial revenue, and even more wondrous products are in the pipeline.
Cures for a variety of deadly diseases are in sight, and so are big potential profits for early investors. Zacks names 5 stocks to buy now.
Click here to see them >>