Has Starbucks turned the corner?

The coffee giant reports earnings Thursday, and investors will be looking to see the impact of the Verismo coffee maker and further global expansion.

By Benzinga Oct 31, 2012 3:59PM

A Starbucks Corp., sign is displayed outside a coffee shop in London, U.K. / Chris Ratcliffe/Bloomberg via Getty ImagesBy Nelson Hem, Benzinga Staff Writer


Starbucks (SBUX), which Jim Cramer on Tuesday recommended buying on weakness, is scheduled to report its fiscal fourth-quarter results Thursday after the closing bell. Among other things, investors will be looking to see whether Starbucks "had turned the corner" with its European restructuring, as CEO Howard Schultz told CNBC recently.


Analysts on average predict that Starbucks will report that revenue for the quarter rose more than 11% year over year to $3.39 billion. Per-share earnings are expected to come to 45 cents, up from 37 cents a year earlier. That consensus EPS estimate has remained steady over the past 60 days. But Starbucks fell short of EPS estimates in the previous quarter, ending a streak of four quarterly positive surprises.


Despite the third-quarter miss, EPS and revenue both had double-digit percentage growth, while domestic same-store sales rose 7%. The company said it was the 11th consecutive quarter of record results. Still, shares plunged more than 17% in the week following the third-quarter report.


For the full fiscal year, the analysts' consensus forecast calls for $1.78 per share in profit on sales of $13.32 billion. That would be up from $1.52 per share and $11.70 billion in the previous year.


The company

Starbucks is the largest coffeehouse operator in the world, with nearly 20,000 stores in 60 countries, including more than 10,000 in the United States. It also produces premium ice cream and markets books, music, and films. It is a component of the Standard & Poor's 500 Index ($INX), headquartered in Seattle, and its market capitalization is more than $34 billion. The company was founded in 1971, and Schultz has been CEO and chairman since 2008.


Competitors include Caribou Coffee (CBOU), Dunkin' Brands (DNKN) and McDonald's (MCD). Caribou is expected to report modest declines in earnings and revenue when it shares its third-quarter results. Last week, Dunkin' posted a better-than-expected third-quarter profit, but its revenue disappointed. McDonald's posted disappointing earnings earlier this month due to increased competition and currency effects.


During the three months that ended in September, Starbucks opened its second Evolution Fresh store, found a mobile payments partner, debuted its Verismo coffee maker for consumers, set a deal to bring coffee to office workers in Switzerland, announced a strategic partnership that would open coffee shops in Scandinavia and said it and a partner would soon open their first shop in India.


Performance

Starbucks' long-term EPS growth forecast is more than 18%, and the return on equity is more than 28%. The 25.0 price-to-earnings (P/E) ratio is in line with the industry average. The dividend yield is about 1.5%. Short interest is less than 2% of the float. Of 30 analysts surveyed by Thomson/First Call who follow the stock, 21 recommend buying shares. The analysts' mean price target signals more than 23 percent potential upside, though the target price is more than four percent less than the multi-year high reached last spring.


The share price has not recovered from the response to the third-quarter report, and in fact it has retreated more than 10% in the past month. Shares are trading in the same neighborhood as at the beginning of the year. That is below the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed Caribou Coffee, but underperformed Dunkin' Brands, McDonald's and the S&P 500.


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