Starbucks Earnings Preview: SBUX Must Top Its Own Success

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Beware investing in momentum stocks. Just look at the punishment being unleashed on shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) — down more than 7% Wednesday after the burrito maker disappointed investors with slower same-store sales.

Starbucks stock SBUX covered callsFast-growing companies can only compete with their own prior success for so long.

But it’s tough to see how premium coffee brewer Starbucks Corporation (NASDAQ:SBUX) will fail in its attempt. While SBUX stock doesn’t qualify as a momentum trade relative to, say, Tesla Motors, Inc. (NASDAQ:TSLA) or Netflix, Inc. (NASDAQ:NFLX), SBUX stock is up roughly 17% so far in 2015, dominating the broader averages.

And if you bought SBUX stock in the last three or five years, SBUX stock has rewarded investors with gains of 70% and 280%, respectively — also dominating the indices.

Last month SBUX stock hit its all-time high of $49.60, adjusted for the recent split. As of Tuesday’s close, SBUX stock traded less than 2% away from its all-time high.

Starbucks Earnings Preview

Earnings estimates have been as low 31 cents per share and have been as high as 35 cents. Estimates currently sit at 33 cents per share, which would mark 17.8% year-over-year jump above last year’s earnings of 28 cents per share.

Not impressed? Those numbers would translate to earnings growth acceleration of more than three percentage points from the first quarter, when earnings per share climbed 14%.

Revenue, meanwhile, is projected to climb 17% year over year to $4.53 billion. Impressively, this would mark the third straight quarter during which revenue growth has accelerated.

SBUX Keeps Charging Ahead

The question, then, to what extent can SBUX stock continue to pay investors and traders? Investors are weary about the fact that Starbucks coffee shops can only pop up in so many more places. However, Starbucks has begun to expand overseas. And while this would present some fears about negative impacts of the strong dollar, Starbucks has several initiatives that are likely to offset these pressures.

For starters, Starbucks is embracing technology to engage more with customers, which is almost certain to offer a better customer experience. The launch of its mobile payments app that allows customers order and pay prior to arriving at the store is perfect example. Starbucks can save on both time and personnel costs since mobile payments can reduce the need for people on cash registers.

Sure, there’s been no clear evidence yet that this initiative will immediately move SBUX stock. But the company is building for the future. And this is where Starbucks will likely distance itself from its competitors in Q2 — the company is doing everything it can to ensure that its results surpass its own high standards.

Bottom Line for SBUX

Starbucks shows no signs of slowing down, with plans to release its new s’mores-flavored Frappuccino on April 28. In other words, good luck waiting for SBUX stock to get any cheaper. As Starbucks remains at the forefront of technological and product innovations, SBUX stock will continue to rise.

Its mobile app, which the company says has 13 million active users, will continue to lead rivals like Dunkin’ Brands Group, Inc. (NASDAQ:DNKN) and — dare I say — McDonald’s Corp. (NYSE:MCD).

So buy SBUX stock, hold it for 12 to 18 months, and be rewarded with 25% gains as fair value is likely to reach $60.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/sbux-stock-starbucks-q2-earnings-beating-success/.

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