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Will Starbucks’s Earnings Rise in Next 4 Quarters?

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EPS estimates

Analysts are expecting Starbucks (SBUX) to post EPS (earnings per share) of $2.25 in the next four quarters, which represents an increase of 11.4% from $2.02 in the corresponding quarters of the previous year. The company’s management has lowered its 2017 EPS guidance from $2.12–$2.14 to $2.08–$2.12 due to the negative impact from underperforming Teavana sales.

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Factors that could drive SBUX’s EPS growth

Revenue growth, expansion of EBIT (earnings before interest and tax) margins, and share repurchases are expected to drive Starbucks’s EPS. Analysts expect Starbucks’s EBIT margins to expand from 19.9% to 20.7%. The sales leverage from positive same-store sales growth, lower commodity prices, and lower G&A expenses are expected to drive Starbucks’s margins. However, the rise in labor costs is expected to offset some of the expansion in margins.

In the last 12 months, the company has repurchased 18.7 million shares. By the end of fiscal 2Q17, the company was authorized to repurchase 99.0 million shares. Share repurchases reduce the number of shares outstanding, thus boosting the company’s EPS.

Analysts expect Starbucks to pay dividends of $0.25 in fiscal 3Q17 and $0.27 in fiscal 4Q17 to take the total for fiscal 2017 to $1.02, which represents growth of 20% from $0.85 in fiscal 2016.

Peer comparisons

For the next four quarters, analysts are expecting Dunkin’ Brands (DNKN), Domino’s Pizza (DPZ), and McDonald’s (MCD) to post EPS growth of 5.7%, 20.3%, and 8.4%, respectively.

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

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