Starbucks (SBUX) Has Room to Run, Goldman Sachs Says; PT Lifted to $57

Goldman Sachs analyst Karen Holthouse reiterated her Conviction Buy List rating on Starbucks (NASDAQ: SBUX) and raised her price target to $57.00 (from $53.50) following Q2 results and commentary that increased the firm's confidence in long-term drivers of value (mobile ordering, food sales, and China).

Holthouse said "although, with a 25% run in the shares in ~5 months and limited upside to near-term EPS guidance, the stock may require 1-2 quarters to grow into valuation."

The analyst highlighted four items that give them more conviction:

(1) Commentary on mobile exceedingly positive…: Commentary on consumer/employee response, ops, food attachment and additional 1-1 marketing was all encouraging, and SBUX also noted that it is “showing growth at peak hours,” which supports our view it is additive to traffic.

(2)…which is why a 2-year traffic deceleration doesn’t concern this: Weather likely was a headwind and, regardless, we believe this relates more to easing compares than a deceleration in the underlying trend. We continue to see mobile ordering driving a traffic re-acceleration by the end of F15.

(3) Food story continues to take shape: We see this as the most under-rated long-term comp driver, with SBUX increasingly tapping into QSR-style convenience with higher quality options and “real food” cues. It added 2% to comps, with lunch continuing DD growth.

(4) A timeline for a technology announcement: SBUX indicated that in the “months and year to come” there will be more on how it could monetize its digital assets – this provides upside optionality over that timeframe.

For an analyst ratings summary and ratings history on Starbucks click here. For more ratings news on Starbucks click here.

Shares of Starbucks closed at $49.43 yesterday.

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