-UBS issued a note to clients early Monday offering an earnings preview for Starbucks (NASDAQ:SBUX) which it rates as a Buy with a $32 target price.
UBS analyst David Palmer said, “While we feel confident SBUX can meet or beat our earnings estimate, we do expect to see a steep ramp up in G&A and marketing reinvestment to support consumer product (CPG) growth opportunities. In addition, we expect VIA load-in benefits to be spent back on advertising. Sales and dairy comparisons should be tougher in F4Q–and we will be watching to see if McDonald’s (NYSE:MCD) Frappes and Smoothies positively or negatively impact Starbucks’ summer sales.”
UBS went onto conclude, “While our earnings estimates imply a 15% long-term growth rate (in-line with consensus estimates), we believe there are ample opportunities for upside as the company pursues long-term growth opportunities in 1) away-from-home specialty coffee, 2) premium coffee (at home and away from home), 3) single serve brewing, and 4) international expansion. We believe this growth is highly achievable with CPG potentially contributing upwards of 4-5pp of growth over the next 5 years.”
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