Analyst Mark Astrachan at Stifel Nicolaus upgraded Starbucks Corp. (SBUX) to buy from hold on Thursday, estimating that the coffee chain will grow comparable store sales in the U.S. by at least 5% to 6% over the next four quarters, starting in the fiscal third quarter—the June quarter. (See also: Starbucks Adds Unicorn-Themed Drink to Menu.)
Astrachan, who raised his price target on SBUX stock to $67 a share from $60 a share, noted that Starbucks beverage innovation, broader food options as well as its technology innovations make the 6% comps growth estimate achievable. He particularly expects the My Starbucks Rewards loyalty program as well as the mobile order and pay feature to drive comps growth.
Looking Toward Outperformance
A comps growth driven by Starbucks’ mobile technology would come as a relief for investors, having been told earlier in the year that the mobile order and pay feature led to congested checkout points in the company’s fiscal year 2017 first quarter. (See aslo: Starbucks: A Victim of its Own Innovation?)
"Starbucks shares have meaningfully underperformed consumer and restaurant peers over the past 12 months, and we believe meeting consensus comp expectations will result in outperformance," Astrachan wrote in a research note.
Astrachan also noted that Starbucks has a considerable opportunity to grow its global packaged coffee, tea and read to drink beverages. These products, categorized under Starbucks’ Channel Development segment, collectively account for about 9% of sales and 19% of EBIT. The Channel Development segment is touted as the coffee chain’s most profitable segment. The company revealed during its fiscal year 2017 first-quarter earnings call in January that the segment delivered an operating margin of 43.9% during the quarter. The company added that, based on a planned segment expansion during the first half of 2017, it anticipates that the Channel Development segment will drive a strong operating margin improvement throughout FY17 compared with FY16.