Stifel sees strength ahead of Starbucks’ (SBUX) 1Q comp report

Stifel reiterated a Hold rating on Starbucks (NASDAQ: SBUX) but raised the price target on the stock to $117.00 (From $93.00) ahead of the company’s 1Q23 U.S. comp performance report. SBUX is expected to report 1Q23 U.S. comps on February 2nd after market close.

Analyst, Chris O'Cull expects Starbucks to report North America and U.S. comps to be 12%, well above the 10% sell-side mean. Transactions for the segment continue, but the key driver of comps has been check growth. The check average benefits, coupled with the upcoming changes to the Rewards program, should increase investors' confidence in the company achieving at least the high end of its 7-9% SRS guide (Street 8%) in FY23.

O'Cull wrote in a note, “We project another strong U.S. comp performance for F1Q23 (scheduled AMC on 2/2). Based on the mobile location data we track; we expect U.S. comps to be 12% (Street 10%). We also raised our FY23 U.S. comp projection to 11% from 10% (Street 7.9%, guidance 7-9%), expecting further check benefits. The U.S. comp continues to benefit from pricing, customization, and food attachment, but we also expect a 1-3%-point benefit from the upcoming changes to the Rewards program.’

The company plans to make meaningful changes to their loyalty rewards program in 2Q23. The more impactful changes include a 100% increase in the required stars for hot brewed coffee, tea, or a bakery item and a 33% increase for handcrafted beverages, hot breakfast items and packaged snacks.

Stifel raised their FY23 EPS estimate to $3.55 from $3.40. For F1Q, FX appears to be the primary reason Stifel’s EPS estimate of $0.74 is below the Street mean of $0.77. The 12-month target price was raised to $117 to reflect higher estimates and a lower risk-free rate from Stifel’s last update in November.

Shares of SBUX are down 0.72% in mid-day trading on Monday.

By Michael Elkins | [email protected]

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