Key Takeaways
- Starbucks shares rose 9% in October as a Chipotle takeover scare faded and the fourth quarter beat on earnings, while McDonald’s rallied too and the Nasdaq 100 fell.
- U.S. comparable sales grew 7.7% in the fourth quarter, but transactions rose just 2.4%, so a bigger average ticket drove most of the gain.
- Fiscal 2027 guidance of $3.15-$3.25 in adjusted EPS tops what analysts expected only thanks to an extra week, with North America comparable sales seen slowing to about 4%.
- The stock trades well above its five-year average valuation, so it looks like a hold until traffic picks back up.
Starbucks (SBUX) stock rose 9% in October, while the Nasdaq 100 fell 7%. And in Thursday’s fourth-quarter release, CEO Brian Niccol said the comeback has moved into a new phase: “Back to Starbucks started as our turnaround plan. Now, it’s our growth plan.”
The month opened with a scare over a possible Chipotle (CMG) takeover. And Starbucks wasn’t the only big consumer name to rally: McDonald’s (MCD) gained 12% over the same stretch. My read: some of both gains came from money leaving tech.
The Chipotle Scare Came and Went
On Oct. 8, the Financial Times reported that Starbucks had explored a takeover of Chipotle, the chain Niccol ran for six years. Chipotle was worth about $39 billion before any premium, and eToro’s Lale Akoner warned investors could see the deal as “an expensive distraction.” Chipotle stock jumped about 6%, and Starbucks hit its October low the next day.
On Oct. 12, a Starbucks spokesperson shut it down: “we want to be clear we are not buying Chipotle.” Niccol told Bloomberg on Friday a multi-brand Starbucks isn’t the focus now, so Chipotle holders shouldn’t count on a takeover premium.
TIKR Tracks 35 Analysts on Starbucks. How Many Say “Buy”?
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What Exactly Happened
The fourth quarter ended Sept. 27. The highlights:
- U.S. comparable sales up 7.7%, ahead of management’s 6.5%-or-better target
- An adjusted operating margin of 14.0%, up 4.6 points from a year earlier
- Adjusted EPS up 54% to $0.80, about 10% ahead of the $0.73 analysts expected
- International comparable sales up just 0.9%
- Revenue down 4% to $9.1 billion, a bit short of estimates, mostly from licensing out China
That margin cleared the roughly 12.4% estimates implied going in.
Customers Spent More per Visit
Traffic slowed, though. U.S. transactions rose 2.4% in the fourth quarter, down from 4.2% in the third, while the average ticket rose 5.2%, up from 3.6%. CFO Cathy Smith said in July that a bit less than half of the third quarter’s comp came from store closures, sales moving to nearby stores and delivery. Starbucks closed about 250 more North America coffeehouses in September, so part of next year’s growth will come the same way.
A Slower Fiscal 2027
Starbucks guided fiscal 2027 adjusted EPS to $3.15-$3.25, including slightly more than 10 cents from an extra, 53rd week. Without it, the midpoint is about $3.10, a hair below the $3.13 analysts expected before the report. Consensus now has EPS rising from $2.72 in fiscal 2026 to $3.17 in fiscal 2027 and $3.75 in fiscal 2028.
Management expects North America comparable sales to grow about 4%, after U.S. comps of 4%, 7.1%, 7.9% and 7.7% through fiscal 2026, and it plans to restart buybacks.
Hold What You’ve Got in Starbucks
Starbucks traded at 36x forward earnings on Oct. 29, against a five-year average of 29x.
At Friday’s close, it’s about 32x the midpoint of its new guidance, or 33x without the extra week. I suspect that’s why the stock slipped 2% the day after a clear beat.
That’s well above the 19x McDonald’s traded at the week before. McDonald’s U.S. comparable sales rose 0.8% in its second quarter, with fewer guests, so Starbucks has earned a premium on traffic. McDonald’s reports in early November.
BofA raised its target to $141 after the report, while UBS held at $105. The average target of about $110 sits less than 10% above Friday’s close.
I wouldn’t take profits on a business that just beat its own target, but I wouldn’t buy more at this price either. Hold, and add on a pullback. U.S. transactions in the first-quarter report, due in late January, could change that: they’re up against 3% growth a year earlier, and beating it would make today’s price easier to pay.
So What Is Starbucks Stock Actually Worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
