Starbucks (SBUX) PT Raised to $68 at RBC Capital

RBC Capital analyst David Palmer reiterated an Outperform rating and boosted its price target on Starbucks (NASDAQ: SBUX) to $68.00 (from $64.00) based on our view that long-term sustainability of growth is increasing with investments in sales momentum.

Palmer comments, "Rarity of growth is becoming more striking, but so is the valuation: As we enter calendar 4Q, there have been many retail and restaurant chains with “choppy” recent trends. And among large cap consumer companies, few are investing for long-term growth. Starbucks (along with Chipotle) is one of only 25 companies in the S&P 500 that have achieved double-digit revenue and EPS growth in each of the last three years. We are increasing our price target slightly, from $64 to $68, reflecting our view that long-term sustainability of growth is increasing with investments and sales momentum—even though this is not equaling higher EPS estimates through FY17. Thus, we are lowering our FY16 EPS estimate from $1.94 to $1.88 (+19% YOY; guidance $1.85–1.87) but maintaining our FY17 EPS estimate of $2.23, implying a higher growth rate that year (18% YOY vs. 15% prior). Our FY16 EPS estimate assumes that a $0.06 EPS benefit from the 53rd week is more than offset by $0.03–0.04 in FX headwinds and $0.05 of incremental investment. Our new price target equates to 29x calendar 2017e EPS of $2.33 and a 1.6 P/E to growth ratio (using an 18% growth rate). While this PEG ratio is higher than most retail, the sustainability, consistency, and high ROIC warrant this, in our view."

The analyst also highlighted investment levels more than offsetting the profit leverage of SSS through FY16 and they see the company still in the early innings of mobile payment.

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 $62.50 yesterday.

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