Piper Jaffray Reiterates an 'Overweight' on Starbucks (SBUX); Raises 2010-11 Estimates
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Piper Jaffray reiterates an Overweight rating on Starbucks (Nasdaq: SBUX), price target increased to $25.
Piper analyst says, "Starbucks has cut significant costs out of its business and as SSS continue to improve, the margin recovery thesis remains intact: Cost cutting measures in the 4Q09 totaled $210 million, bringing the total savings for FY09 to $580 million Balance sheet continues to improve; with a $900 million FCF at year end we calculate an approximate 6% yield. The company's new pricing strategy (developed with a third party) is engineered to drive gross margin by retooling prices, both up and down. Ultimately, the value proposition is enhanced which could further strengthen the company's already dominant position. Based on FY09 results, we are raising our FY10 estimate $0.04 to $0.94 and our FY11 $0.04 to $1.09 per share. We believe the company warrants a 1.3x PEG due to the company's continued dominant position in terms of brand equity, margin recovery, improved transaction trends which yields a $25 price target ($24 prior)."
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