Global coffeehouse chain Starbucks Corporation (SBUX - Get Rating) reported a solid second-quarter performance and is optimistic about its growth prospects in the long term.

The company introduced a Reinvention Plan last year to improve stores and the employee and customer experience as unionization efforts swept the nation. As part of ongoing efforts to support its strategy, the company opened 464 net new stores in the second quarter of this year, inclusive of closures across North America and internationally.

SBUX’s Chief Financial Officer, Rachel Ruggeri, stated, “This momentum was made possible by the investments we are making in our stores and partners, and allowed us to continue unlocking capital to further reinvest in our business.”

She also said, “As we begin on this next step in our journey, I’m confident that, together with our partners, our execution against our Reinvention plan and broader strategies will position us in our new era.”

Over the past year, the stock has gained 39.2% to close the last trading session at $100.66. It is trading higher than its 10-day and 200-day moving averages of $98.86 and $99.13, respectively.

Here are some factors that could influence SBUX’s performance in the upcoming months:

Robust Financials 

SBUX’s total net revenues increased 14.2% year-over-year to $8.72 billion for the fiscal second quarter (ended April 2, 2023). The company’s non-GAAP operating income increased 25% year-over-year to $1.25 billion. Moreover, its non-GAAP EPS came in at $0.74, representing a 25.4% increase from the prior-year quarter. 

High Profitability  

In terms of the trailing-12-month EBIT margin, SBUX’s 14.13% is 92.7% higher than the 7.33% industry average. Its 10.46% trailing-12-month net income margin is 144.1% higher than the 4.28% industry average. Likewise, its 12.43% trailing-12-month Return on Total Assets is 241.7% higher than the industry average of 3.64%.

Favorable Analyst Estimates 

The consensus EPS estimate of $3.43 for the fiscal year 2023 represents a 15.8% improvement year-over-year. The consensus revenue estimate of $36.12 billion for the same year indicates a 12% increase from the prior year. 

Its EPS for fiscal 2024 is expected to increase 19.7% year-over-year to $4.10, while its revenue is expected to increase 11.4% year-over-year to $40.23 billion.

SBUX’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 13.9% and 14.4% year-over-year to $0.96 and $9.33 billion, respectively. It also has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. 

POWR Ratings Show Promise

It’s no surprise that SBUX has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories.

The stock has a B grade for Quality, in sync with its high profitability. Its B grade for Momentum is consistent with the stock trading above its moving averages.

Within the A-rated Restaurants industry, SBUX is ranked #21 out of 44 stocks.  

Click here to access the additional ratings of SBUX for Growth, Value, Stability, and Sentiment. 

Bottom Line 

Following a strong fiscal second-quarter performance, SBUX is optimistic about unlocking further potential. Additionally, Wall Street analysts expect the stock to hit $116.47 in the near term, indicating a potential upside of 15.7%. Given its high profitability and favorable analyst estimates, the stock could be a promising buy this month.

How Does Starbucks Corporation (SBUX) Stack Up Against Its Peers?  

While SBUX has an overall POWR Ratings grade of B, equating to Buy, one may also want to consider these other stocks within the Restaurants industry with an A (Strong Buy) or B (Buy) rating: Biglari Holdings Inc. (BH - Get Rating), Nathan’s Famous, Inc. (NATH - Get Rating), and McDonald’s Corporation (MCD - Get Rating).

What To Do Next?

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SBUX shares were trading at $101.24 per share on Thursday afternoon, up $0.58 (+0.58%). Year-to-date, SBUX has gained 3.08%, versus a 15.88% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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