3 Reasons Goldman Is Buying Starbucks Stock

Courtesy of Benzinga.

• Starbucks Corporation (NASDAQ: SBUX) shares have appreciated 55.79 percent year-to-date, reaching a high of $63.51 on October 28.
• Goldman Sachs' Karen Holthouse has maintained a Buy rating on the company, while raising the price target from $65 to $69.
• Although the company has a good asset base, brand and IT infrastructure, to be able to take advantage of the opportunities they present, Holthouse believes that Starbucks would need to compromise on near-term profits.

Analyst Karen Holthouse believes that the “high-return areas of investment,” including the company’s brand, asset base and IT infrastructure, offer long-term growth and returns, with the potential for continuing topline acceleration and “scarcity value of growth/stability in a retailer of its size ultimately offering multiple protection.”

Related Link: The 'Big Surprise' Starbucks Just Unveiled On Its Conference Call

Of the three reasons that Holthouse mentions for buying the stock, the first is that Starbucks’ long-term drivers remain “more than intact.” “Mobile/digital commentary remained resoundingly positive,” while the acceleration in lunch sales persists and new store productivity in both the US and China have continued at “all-time highs.”

Secondly, “SBUX made it clear that F15 comp drivers remain intact, and F16 sees mobile added on,” according to the Goldman Sachs report.

Thirdly, Holthouse believes that the company’s long-term algorithm remains intact. Although the FY16 EPS growth guidance appears low, the run rate is expected to hit the mid-point by mid-FY16.

“We would become more concerned about multiple compression if it becomes clear a similar pace of investment continues into F17 without corresponding strength in the top-line,” Holthouse added.

The FY16-FY18 EPS estimates have been lowered, following the Q4 earnings results.

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