America's primary caffeine dealer, Starbucks (NASDAQ:SBUX) has had quite a year. With many of its locations forced to close by the coronavirus lockdowns, and its drive-thru operations less than effective as many found themselves unable to go into work, it would be easy to wonder if this great institution was about to finally collapse. Recoveries were made, though, and the word from analysts is starting to come out in force. It's all adding up to big things to come as Starbucks begins to consider its upcoming fiscal year 2022.
Well Ahead of the Game
While most of us are looking forward to the ball dropping on 2021—which will likely be done in the midst of a mostly-empty Times Square—Starbucks is already getting ready for 2022, by not only showing off the rest of its fiscal 2021, but giving us insight into its fiscal 2022, which kicks off this October.
For fiscal 2021, the company expects to bring in earnings per share (EPS) figures between $2.70 and $2.90 per share. By that October start date for fiscal 2022, the company expects earnings growth exceeding 20%, thanks to the light year that preceded it.
Starbucks even offered insight on its fiscal 2023 and 2024 figures, looking to dial back the growth somewhat but continue growing in earnest. Adjusted EPS figures for those two years are poised to be in line with earlier long-term growth targets, with adjusted EPS coming in in the 10% to 12% range.
More Than a Numbers Game
While Starbucks is throwing around some big numbers, it also has some clear plans to make those numbers happen. It also has plans for a range of market conditions. For instance, the company is looking to augment its drive-thru lanes with artificial intelligence systems, which will hopefully learn things about pacing and flow rates to help shorten wait times. About 800 locations that weren't turning in solid performance are poised to be shut down, which will reduce expenses.
Starbucks is also poised to launch some new experiments well-suited to a lockdown age: some urban locations will have no seating at all, while suburban locations will enjoy more drive-thru lanes. Naturally, Starbucks will be keeping a weather eye on all these processes and will be making modifications accordingly.
Analysts Want Another Cup Too
The analyst community, based on our latest research, is already bellying up for another shot of espresso and stock. The company currently enjoys a “buy” rating, as it has for the last three months when it first saw a hike from “hold”. Currently the company has 12 “hold” ratings and 15 “buy” ratings, just as it did this time last month. That's improved from three months ago, where the company was at 14 “hold” and 14 “buy”, but still.
The price target has popped up recently as well, going from $88.44—which held for about two months—to $94.20 today. Given that Starbucks is currently trading at $100.40, there's a fair likelihood some price targets will be getting revised upward soon. Today was an excellent example of that; five different analysts, from Wedbush to Cowen, all hiked price targets with today's trading.
Put a Hand Over that Cup for Now
Knowing all this, why would anyone think it's a good idea to hold off on buying more? After all, the company clearly has a plan going forward, and is already projecting big numbers for the next two to four years, depending on what kind of calendar you're looking at.
One of the biggest problems with Starbucks' projections is that it seems to be assuming status-quo returns early next year. That would seem to be a long shot at best. We've barely even begun rolling out vaccines yet, and considering how much media doubt was pointed to the therapeutics, their chances of catching on are a bit slim.
Plus, Starbucks is laden with experimental plans this year. AI in the drive-thru sounds great, but how will it actually work? Will anyone care about more drive-thru lanes if they still can't drive to work? Even Starbucks' successes can be double-edged; remember when Starbucks rolled out mobile ordering? It worked so well that Starbucks lost sales; stores were so backed up from mobile orders employees couldn't address people at the counter.
Starbucks is certainly a stock to keep on your list. However, Starbucks also seems to have a lot of its current good news priced in, and its future good news depends pretty heavily on future developments. Let some of that future become present, then consider buying in on Starbucks' future once it becomes a little clearer. There are a lot of moving parts to Starbucks going forward, and that means quite a bit of risk.
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