EPS expectations

For fiscal 1Q18, analysts are expecting Starbucks (SBUX) to post adjusted EPS (earnings per share) of $0.57, which represents growth of 9.6% from $0.52 in fiscal 1Q17. The EPS growth is expected to be driven by revenue growth, a lower effective tax rate, and share repurchases.

Will Starbucks Outperform Analysts’ EPS Expectations in Fiscal 1Q18?

Between the beginning of fiscal 2Q17 until the end of fiscal 4Q17, the company had repurchased 29.9 million shares for $1.7 billion. At the end of fiscal 4Q17, the company had the authorization to repurchase 80.3 million shares. Share repurchases reduce the number of shares outstanding, thus boosting the company’s EPS. Also, during fiscal 1Q18, analysts are expecting the company’s effective tax rate to be at 33.3% compared to 33.7% in fiscal 1Q17.

However, some of the growth in EPS is expected to be offset by a fall in EBIT margins. Analysts expect the company’s EBIT margins to fall from 20.0% in fiscal 1Q17 to 19.8%.

Peer comparisons

During the same period, McDonald’s (MCD) and Domino’s Pizza (DPZ) are expected to post EPS growth of 10.8% and 31.5%, while the EPS of Dunkin’ Brands (DNKN) is expected to fall by 1.6%.

Outlook

For fiscal 2018, Starbucks’s management expects its EPS to be in the range of $2.30 to $2.33, which represents growth of 11.7% to 13.0% from $2.06 in fiscal 2016. Analysts are expecting the company to post EPS of $2.37, which represents an increase of 15.0% from $2.06 in fiscal 2016.

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

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