Why Analysts Expect Starbucks’s EPS to Increase



Analysts’ EPS expectations

For the fourth quarter, analysts expect Starbucks (SBUX) to post an EPS of $0.60, which represents 9.1% growth from $0.55 in the fourth quarter of 2017. The EPS growth is expected to be driven by revenue growth and share repurchases. The EPS growth is expected to be partially offset by a decline in the net margins.

Analysts expect Starbucks’s net margin to decline from 14.0% to 13.1%. The decline would likely be driven by the acquisition of the East China business and an increase in SG&A (selling, general, and administrative) expenses due to incremental investments in implementing digital advancements. However, some of the declines are expected to be offset by a lower effective tax rate. Due to the enactment of tax reforms in December 2017, analysts expect the company’s effective tax rate for the quarter to decline from 37.0% to 24.8%.

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Moving to share repurchases, Starbucks repurchased 73.0 million shares for $4.1 billion in the first three quarters of 2018. By the end of the third quarter, the company had ~107 million shares available under its share repurchase program. Share repurchases drive the company’s EPS by lowering the number of shares outstanding.

Peer comparisons and management’s guidance

During the same period, Dunkin’ Brands (DNKN) and McDonald’s (MCD) posted EPS growth of 16.9% and 19.3%, respectively.

For 2018, Starbucks’s management has set an adjusted EPS guidance of $2.40–$2.42, which represents 16.5% growth year-over-year to 17.5% from $2.06 in 2017.

Next, we’ll discuss analysts’ recommendations.


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