Starbucks beats Q1-2017 EPS view, reaffirms FY17 EPS outlook

Lower-than-anticipated same-store sales triggered a selloff in the stock of coffeehouse chain Starbucks Corp. (NASDAQ: SBUX) in the last week of January.

After hitting a low of $53.82 on February 2nd, the stock has recovered about 5% to close at $56.54 on Tuesday. We anticipate further upside in the stock due to the reasons discussed below.

The Seattle, Washington-based company reported fiscal 2017 first-quarter revenues of $5.733 billion, up 7% from $5.374 billion in the similar period of fiscal 2016.

For the quarter ended January 1, 2017, Starbucks reported net earnings of $751.8 million or $0.51 per share, compared with $687.6 million or $0.46 per share in the quarter ended December 27, 2015.

Starbucks Coffee

Excluding acquisition related charges, the Q1-2017 earnings were $0.52 per share, up 13% from $0.46 per share in last year’s similar quarter. The Wall Street analysts had expected earnings of $0.52 per share on revenues of $5.85 billion.

The comparable same-store sales increased 3% y-o-y in the first-quarter of 2017. It was lower than market’s expectation of 3.8% growth. This led to a fall in the share price. However, the figures reflect only one side of the story. The China-Asia Pacific (CAP) segment reported 5% y-o-y rise in the comp sales. Likewise, the US same-store sales grew 3% y-o-y in the first quarter.

Mobile order and pay accounted for 7% of the transactions in the US subsidiary. During the same period last year, only 3% of the transactions were done through mobile. During the quarter, the company opened 649 net new stores worldwide, taking the total store count to 25,734.

Starbucks slashed the 2017 revenue growth outlook to a range of 8% to 10%, from the double-digit growth view provided earlier. However, the company reaffirmed its fiscal 2017 earnings view of between $2.12 and $2.14 per share, which is in line with analysts’ estimates. The forward PE ratio of 26 is a bit higher than average gains from the market. However, Starbucks expects to record an earnings growth of 12.5% in fiscal 2017 – more than double the earnings growth rate of S&P 500 Index. In fiscal 2018, the company anticipates to report earnings of $2.47 per share, which would translate to an annualized growth rate of 15%. Thus, considering the strong growth prospects, we anticipate the stock of Starbucks to remain bullish.

The price chart indicates that the stock has found support at 55 levels. The accumulation/distribution indicator reveals that money is flowing into the stock. So, a further increase in the share price can be anticipated.

The fundamental and technical analysis can be used to profit from the binary market by investing in a call option contract. To increase the probability of success in the trade, the entry should be made when the stock trades near $56. Choosing February 22nd as the contract expiry date would improve the chances of success in the trade.

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