Starbucks Earnings Preview: Strong Fiscal First Quarter Expected

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By Nelson Hem | January 24, 2013 4:52 AM EST

Starbucks (NASDAQ: SBUX [FREE Stock Trend Analysis]), which was a recent Jim Cramer pick, is scheduled to report its fiscal first-quarter results Thursday, January 24, after the markets close.

Investors will be looking for what is new with the recently completed buyout of Teavana Holdings and the company's move into emerging markets, particularly China, as well as how the company is faring against the increasing competition from the likes of Green Mountain Coffee Roasters (NASDAQ: GMCR) and McDonald's (NYSE: MCD).

Expectations

Analysts on average predict that Starbucks will report that revenue for the quarter rose more than 11 percent year-over-year to $3.84 billion. Earnings of $0.57 per share are also in the consensus forecast. That would be up from a reported profit of $0.50 per share in the comparable period of last year.

Analysts seem to be pretty sure about their estimates, as the consensus has not changed in the past 60 days, and individual estimates only range from $0.55 to $0.59 per share. However, analysts underestimated the company's earnings per share (EPS) results in five of the past six quarters. The fourth-quarter earnings of $0.46 per share beat the street view by a penny.

In the previous report, Starbucks posted record quarterly and full-year revenue and said strong traffic boosted same-store sales both domestically and internationally. Also, the board raised the quarterly dividend by 24 percent.

CFO Troy Alstead said: "On the strength of our business in fiscal 2012 and the momentum we carry into the new fiscal year, we remain confident in our fiscal 2013 outlook of continued strong profitable growth on a global scale." The share price jumped about nine percent following the fourth-quarter report.

Looking ahead to the current quarter, the analysts' consensus forecast so far calls for year-over-year EPS growth of more than 16 percent, as well as revenues that are more than 12 percent higher. That consensus EPS estimate is unchanged in the past 60 days. And the full-year forecast also calls for similar growth of EPS and revenues, relative to the previous year.

The Company

Starbucks is a retailer of specialty coffee with more than 9,400 company-operated stores and more than 8,600 licensed stores worldwide. Its brands include Starbucks, Tazo, Seattle's Best Coffee, Starbucks VIA Ready Brew, Evolution Fresh and Verismo.

This S&P 500 component was founded in 1985 and is headquartered in Seattle. The company has a market capitalization near $40.9 billion. Howard Schultz is the founder, chairman and chief executive officer.

Besides Green Mountain Coffee Roasters and McDonald's, other competitors include Dunkin' Brands (NASDAQ: DNKN). Dunkin' is expected to report marginal earnings and revenue growth for its most recent quarter, while Green Mountain's EPS are expected to be up more than seven percent and sales up about 15 percent.

McDonald's posted better-than-expected fourth-quarter and full-year results today.

During the three months that ended in December, Starbucks opened its first store in India, authorized additional share repurchases, unveiled its accelerated global growth plans at its biennial investor conference and completed its Teavana acquisition.

Performance

Starbucks has a long-term EPS growth forecast of more than 18 percent, but its price-to-earnings (P/E) ratio is about 30.7. While the operating margin is greater than the industry average, the return on equity is about 29 percent and the return on investment is more than 24 percent.

The number of Starbucks shares sold short, as of the end of December, represents a little more than one percent of the float. That is the lowest that the short interest has been since August.

Of the 30 analysts surveyed by Thomson/First Call who follow the stock, 23 recommend buying shares; 12 of them rate the stock at Strong Buy. The analysts' mean price target, or where they expect the stock to go, represents more than nine percent potential upside. That would be a level the stock has not seen since last spring, when the share price reached a multiyear high.

The share price has risen about 18 percent since the previous quarterly report, but shares have traded mostly between $54 and $56 for the past three weeks and are now in line with the 50-day moving average. The stock is about 16 percent higher than a year ago.

Over the past six months, the stock has underperformed Dunkin' Brands, Green Mountain Coffee Roasters and the S&P 500, but it has outperformed McDonald's.

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