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Starbucks’s 3Q17: What to Expect from the Unicorn Frap Giant

PART:
1 2 3 4 5 6
Part 4
Starbucks’s 3Q17: What to Expect from the Unicorn Frap Giant PART 4 OF 6

Why Analysts Expect Starbucks’s Earnings to Increase

Earnings estimate

In fiscal 3Q17, Starbucks (SBUX) is expected to post adjusted EPS (earnings per share) of $0.55, which represents growth of 12.2% from $0.49 in fiscal 3Q16. EPS growth is expected to be driven by revenue growth, an expansion of EBIT margins, and share repurchases.

Why Analysts Expect Starbucks&#8217;s Earnings to Increase

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From the beginning of fiscal 4Q16 until the end of fiscal 2Q17, the company repurchased 26.3 million shares for $1.4 billion, and by the end of fiscal 2Q17, the company had authorization to repurchase 2.4 billion shares. Share repurchases boost the company’s earnings by reducing the number of shares outstanding.

However, some of the growth in EPS is expected to be offset by a higher effective tax rate and unfavorable foreign exchange. Analysts expect the effective tax for the company to rise from 29.7% in fiscal 3Q16 to 33.5%.

Peer comparisons

During the same quarter, analysts expect Dunkin’ Brands (DNKN), McDonald’s (MCD), and Domino’s Pizza (DPZ) to post EPS growth of 9.4%, 11.7%, and 25.5%, respectively.

For the next four quarters, analysts expect Starbucks to post EPS of $2.25, which represents growth of 11.4% from $2.02 in the corresponding quarters of the previous year.

Dividends

In fiscal 2Q17, Starbucks paid dividends of $0.25 per share at a dividend yield of 1.73% and a payout ratio of 47.6%. For fiscal 3Q17, analysts expect the company to pay dividends of $0.25 per share, and in fiscal 4Q17, they expect the company to raise their dividends to $0.27 per share. Overall for fiscal 2017, analysts expect Starbucks to pay dividends of $1.02, which represents growth of 20% compared to $0.85 in fiscal 2016.

Next, we’ll look at Starbucks’s valuation multiple.

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