Here's What The Buy Side Expects From Starbucks On Thursday

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 |  About: Starbucks Corporation (SBUX), Includes: SODA
by: Leigh Drogen

Starbucks Corp. (NASDAQ:SBUX) is set to report FQ2 2014 earnings after the market closes on Thursday, April 24th. Last quarter there was some concern that Starbucks sales might be down because of the weather and lower customer traffic in shopping centers where many Starbucks stores are located. As it turned out Starbucks did come up short on revenue, but also managed to top profit expectations by a small margin. Rumors have been swirling that Starbucks may be about to take a stake in SodaStream (NASDAQ:SODA), the at-home carbonated beverage system, to go head to head with Green Mountain Coffee Roasters (NASDAQ:GMCR) and their Keurig machine. Here's what investors expect from Starbucks on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

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(Click here to see Estimates and Interactive Features for Starbucks)

The current Wall Street consensus expectation is for Starbucks to report 56c EPS and $3.970B revenue while the current Estimize.com consensus from 40 Buy Side and Independent contributing analysts is 57c EPS and $3.970B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Starbucks to beat the Wall Street consensus by a penny on EPS and report in line on revenue.

Over the previous 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting Starbucks' EPS and revenue 3 times each. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing almost no difference between the two groups' expectations.


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The distribution of estimates published by analysts on the Estimize.com platform range from 53c to 59c EPS and from $3.900B to $4.050B in revenues. This quarter we're seeing a slightly more narrow distribution of estimates than usual on Starbucks.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A narrow distribution of estimates signals more agreement in the market, which could mean less volatility post earnings.

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Over the past 4 months the Wall Street EPS forecast remained flat at 56c while the Estimize consensus oscillated between 56c and 57c. Meanwhile, Wall Street brought down its revenue projection from $19.715B to $19.455B while the Estimize consensus dropped from a high of $20.045B to $19.601B. Timeliness is correlated with accuracy and upward analyst revisions at the very end of the quarter are often a bullish indicator.

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The analyst with the highest estimate confidence rating this quarter is j_holliman who projects 58c EPS and $3.945B in revenue. j_holliman is ranked 8th overall among 4,200 contributing analysts. Over the past 2 years j_holliman has been more accurate than Wall Street in forecasting EPS and revenue 57% and 49% of the time respectively throughout 1397 estimates.

Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, j_holliman is expecting Starbucks to exceed expectations on EPS but fail to live up to the consensus from either Estimize or Wall Street on sales.

While investors don't expect an exciting earnings report from Starbucks, any news about a stake in SodaStream or a new business initiative could be big news. SODA stock was up more than 10% on Wednesday based on reports that the two companies were in talks for Starbucks to take a 10% stake. If no deals are announced after the close tomorrow, it may be an uneventful earnings release. The Estimize community expects an in-line report on revenue and for Starbucks to sneak past the Wall Street EPS consensus by a penny per share.

Disclosure: No positions