Why Starbucks Stock Is Rising



Stock performance

As of December 5, 2017, Starbucks (SBUX) was trading at $59.34, which represents an 8.1% rise since the announcement of its fiscal 4Q17 earnings on November 2, 2017.

Although Starbucks failed to meet analysts’ EPS (earnings per share) and revenue expectations in fiscal 4Q17, SBUX stock rose due to the company’s strong performance in China. Investors are optimistic about the company’s plan to open 600 new restaurants in China in fiscal 2018. They’re also pleased about management’s plan to drive its same-store sales growth. The proposed tax reform bill, which could lower the corporate tax rate from 35% to 20%, could provide a lower tax rate for Starbucks. In fiscal 2017, its effective tax rate was 33.2%.

Since the beginning of 2017, Starbucks stock has risen 6.9%. During that same period, its peers McDonald’s (MCD), Dunkin’ Brands (DNKN), and Domino’s Pizza (DPZ) have risen 42.1%, 16.3%, and 16.5%, respectively.

Valuation multiple

As of December 5, 2017, Starbucks was trading at a forward PE (price-to-earnings) multiple of 25.0x. That same day, McDonald’s, Dunkin’ Brands, and Domino’s Pizza were trading at 24.9x, 23.4x, and 27.3x, respectively.

2018 expectations

In fiscal 2018, analysts are expecting Starbucks to post EPS of $2.31 on revenues of $24.6 billion. Compared to the corresponding four quarters of the previous year, the revenue is expected to rise 9.9%, while EPS is expected to rise 11.6%.

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