DJ Starbucks Earnings May Not Show the Recovery Taking Place -- Barrons.com

By Teresa Rivas

Starbucks will report fiscal first-quarter earnings next Tuesday afternoon, and MKM Partners notes that recent trends have probably improved for the cafe and coffee giant. Yet that doesn't mean the stock is a buy.

Analyst Brett Levy reiterated a Neutral rating on Starbucks (ticker: SBUX) stock and $104 price target on Thursday. He writes that while restaurant peers' results have been volatile in recent weeks, he thinks that after a slow start, the picture probably brightened later in the quarter. "Starbucks' early recovery plans are playing out," Levy adds.

That said, investors shouldn't get their hopes up too much, he warns. Starbucks is still expected to post same-store sale declines in the mid-single-digit range for the quarter, and while both the U.S. and China made progress throughout 2020, management warned in December that the U.S. was lagging late in the year. Levy thinks some of this weakness can be overcome by Starbucks' robust margins, but ultimately he thinks earnings per share will come in at 54 cents -- two cents shy of the consensus estimate.

Along with top- and bottom-line results, he thinks investors will be focusing on margins, as well as any ongoing benefits Starbucks is seeing from its investment in logistics. "The portfolio's long-term transformative moves are helping the company adapt to the critical factors needed to address the consumers' changing needs," Levy writes, meaning that any updates to global development targets would also be welcome of evidence that it's rightsizing the business and building a stronger base.

Ultimately, however, while he believes in the company's long-term direction, he remains sidelined on Starbucks stock, given that its recent outperformance leaves the shares fully valued in his opinion.

Starbucks stock is roughly flat in Thursday morning trading at $105.47.

Shares are down 1.4% since the start of the year, but have climbed 12.5% in the latest 12 months, easily surpassing their pre-pandemic levels, and rallying in the past few months, as investors anticipate stronger growth when the economy fully reopens.

Other analyst are more bullish on the stock, and Barron's noted late last year that Starbucks can still deliver growth.

Write to Teresa Rivas at teresa.rivas@barrons.com

(END) Dow Jones Newswires

January 21, 2021 09:55 ET (14:55 GMT)

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