Restaurant giant Starbucks Corporation (SBUX - Get Rating) beat revenue estimates by $98.18 million for its fiscal 2022 fourth quarter. Interim CEO Howard Schultz said, “We saw accelerating demand for Starbucks coffee around the world in Q4 and throughout the year.”

He added, “Reinvention will touch, and elevate, every aspect of our Starbucks partner, customer and store experiences, and ideally position Starbucks to deliver accelerated, sustainable, long-term, profitable growth and value creation beginning in 2023.”

Moreover, the company, along with DoorDash, Inc. (DASH), recently announced the expansion of their partnership with a new delivery service in Northern California, Texas, Georgia, Florida, and other select markets.

The collaboration is expected to fortify revenue generation for both companies amid heightened demand for delivery services.

Furthermore, SBUX has paid dividends for 12 consecutive years. Its dividend payouts have increased at a 13.8% CAGR over the past five years. Its current dividend yield is 1.96%, while its four-year average yield is 1.88%.

SBUX has gained 9.3% over the past month to close the last trading session at $108.40. It has gained 27.9% over the past six months and 11.5% over the past year.

Here is what could shape SBUX’s performance in the near term:

Solid Top-line Growth

SBUX’s revenues from company-operated stores increased marginally year-over-year to $6.90 billion for the quarter that ended October 2, 2022. Its revenues from licensed stores came in at $998.40 million, up 25.7% year-over-year, while its total net revenues came in at $8.41 billion, representing a 3.3% year-over-year rise.

Moreover, its U.S. store count came in at 15,878, up 3% year-over-year.

Favorable Analyst Estimates

SBUX’s revenue is expected to increase 11.7% year-over-year to $36.01 billion for the current fiscal year 2023. Its revenue is expected to increase 11% year-over-year to $39.98 billion for the next fiscal year 2024.

In addition, SBUX’s EPS is estimated to increase 16.2% and 18.9% year-over-year to $3.44 and $4.09 for 2023 and 2024, respectively. Also, its EPS is expected to rise 17.8% per annum for the next five years.

Robust Profitability

SBUX’s trailing-12-month EBITDA and net income margins of 18.52% and 10.18% are 67% and 96.5% higher than the industry averages of 11.09% and 5.18%.

In addition, its trailing-12-month ROTC and ROTA of 16.61% and 11.73% are 157.2% and 158.3% higher than the industry averages of 6.46% and 4.54%, respectively.

POWR Ratings Reflect Promising Outlook

SBUX’s overall rating of B equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

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

SBUX has an A grade for Sentiment, in sync with favorable analyst estimates.

It has a B grade for Quality, consistent with its higher-than-industry profitability margins.

In the 45-stock B-rated Restaurants industry, SBUX is ranked #16.

Click here for the additional POWR Ratings for SBUX (Growth, Value, Momentum, and Stability).

View all the top stocks in the Restaurants industry here.

Bottom Line

SBUX saw strong top-line growth in its latest reported quarter. Moreover, Wall Street analysts expect the stock to hit $111.40 shortly, indicating a potential upside of 2.8%. Given its positive outlook and robust profitability, I think SBUX might be an ideal restaurant stock to buy now.

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

While SBUX has an overall POWR Rating of B, one might consider looking at its industry peers, Nathan’s Famous, Inc. (NATH - Get Rating), Biglari Holdings Inc. (BH - Get Rating), and Ark Restaurants Corp. (ARKR - Get Rating), which have an overall A (Strong Buy) rating.

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SBUX shares were trading at $108.45 per share on Tuesday morning, up $0.05 (+0.05%). Year-to-date, SBUX has gained 9.32%, versus a 5.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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