China Remains A Significant, Largely Untapped Opportunity For Starbucks

Wedbush’s Nick Setyan expects Starbucks Corporation SBUX's comp momentum in the Americas, acceleration in CAP unit growth, successful turnaround in the EMEA and multiple opportunities in CPG and emerging markets to drive consistent annual EPS growth in the mid to high teens.

Setyan reiterated an Outperform rating on the company, with a price target of $65.

Growth Runway

The analyst mentioned that the company’s five-year plan targets annual revenue growth of 10 percent, along with 15–20 percent EPS growth and comp growth in the mid-single digits.

“Growth is expected to be driven by expansion of Starbucks Reserve, premiumization-driven menu innovation, continued digital adoption, further growth in China and Channel Development, and sustained partner investments,” Setyan stated.

Operating income in the Americas is expected to double by FY 2021, driven by Reserve and premiumization, with incremental revenue of $9 billion and 4,700 net new stores.

The China Opportunity

In addition, China is expected to grow to more than 5,000 stores by 2021, with almost triple revenue and operating income.

“With new store year-1 ROIs >70 percent, significant white space, numerous untapped digital opportunities, and a burgeoning middle class and specialty coffee culture, we believe China remains a compelling long-term growth story,” the analyst noted.