By Brendan Gilmartin
Starbucks (NASDAQ:SBUX) is scheduled to report 4Q 2011 earnings after the close of trading on Thursday, November 3. Results are typically available several minutes after the closing bell and will follow with a conference call at 5:00 p.m. EST.
Outliers & Strategy
Non-GAAP Earnings Per Share (EPS): The value for this measure compares with consensus estimates.
Revenues: Starbucks previously said it expects approximately 10% revenue growth.
Earnings Per Share Guidance (FY2012): Starbucks previously said it expects EPS growth in the range of 15% to 20%, consistent with its long-term outlook, and including the unfavorable impact of approximately $0.21 attributable to higher coffee costs. Based on the estimated 2011 guidance of $1.50 to $1.51, the projected range for 2012 is $1.73 to $1.81. Any adjustment to this outlook could have a meaningful impact on trading in Starbucks.
Coffee Futures falling sharply since nearing all-time highs at the end of August. The spot price for coffee is off more than 20% from the August highs and is now near a one-year low. See chart. (Chart courtesy of StockCharts.com)
Starbucks previously indicated it expects earnings per share for the fourth quarter to be in the range of $0.35 to $0.36. Street estimates are toward the high end of this guidance. In addition to the earnings outlook, Starbucks said it expects approximately 10% revenue growth on a comparable 52-week basis. The consensus is $2.95 billion.
Sympathy Plays: Peet's Coffee & Tea (PEET), Green Mountain Coffee Roasters (GMCR), Dunkin' Brands Group, Inc. (DNKN), Coffee Holding Co. Inc. (JVA), and Caribou Coffee Company (CBOU).
10/13: Piper Jaffray reiterated an Overweight rating on Starbucks and raised the price target from $50 to $55, citing growth opportunities in the single-serve coffee market and lower coffee prices, according to Benzinga.com.
08/30: Starbucks announced it would produce K-Cup Portion Packs for the Keurig Single Cup Brewing system in the U.S. starting in November 2011.
Starbucks shares recently broke out to a 52-week high of $43.43, moving in the opposite direction of coffee futures, which neared all-time highs in late August. Despite the recent weakness, the shares are holding support near $41, a level going back to late June and coinciding with the 20-Day SMA. There is further downside risk to $40, followed by $39. Resistance is at the recent highs near $43. (Chart courtesy of StockCharts.com)
Starbucks shares recently broke out to a 52-week high, benefiting from the pullback in coffee prices, the announcement of the K-cup portion packs, and continued expansion across key markets in Latin America and China. Following the run-up, Starbucks shares are now trading at about 2.8x sales, a level not seen since 2006, and above the 5-year average of 1.9x. The shares are also trading at 27x trailing earnings, a multiple not seen since 2009. In order to reclaim the 52-week high, Starbucks needs to exceed the forecast it provided in July and provide an upward bias on the 2012 earnings outlook given all the positive sentiment surrounding the name.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.