Starbucks (SBUX) Expected to Prevail, Thanks to Loyal Customers and Growth in China

By Carrie Williams

Starbucks Corp is still a buyCoffee giant, Starbucks Corporation (NASDAQ: SBUX) had recently traded close to its 52-week low of $50.84 thanks to the growth concerns across the globe as well as in China. However, the stock has recently shown signs of upward momentum and is currently trading at the $52.75, which is just below the 20 day SMA of $56.07.

Meanwhile, Starbucks had announced its FYQ416 on Thursday. SUBX reported FY4Q16 EPS of $0.56 which was better than the consensus by $0.01. BMO analyst Andrew Strelzik retained the Outperform rating for SBUX this week, while lowering the price target to $62. This new PT is an upside of 15.6% from the current price levels.

Due to the current amazon effect, retail stores across sectors suffered a huge drop in their store traffic.  Even though Starbucks also succumbed to the effect, CEO Howard Schultz is confident that the company would become highly relevant as a gathering place for the community after five to 10 years, thanks to a sunken retail landscape.

Aptly hailed as one of the best income stocks, Starbucks is known for offering investors a degree of safety amongst the challenging restaurant environments. Starbucks also have a loyal customer base who consider coffee as a part of their daily routine. This is expected to propel SUBX forward to a better financial performance in upcoming quarters despite upcoming Federal Reserve hike.

The growth opportunities still remain untapped in China, wherein the upcoming 46% customer wage growth is expected to bring in further disposable income in medium to long term. Starbucks has made already plans to capitalize on it, as indicated by its decision to open 500 stores per annum between now and 2021 in China.

The current path of diversification of product range, as well as innovation, is further expected to drive margins as well as sales for Starbucks.

The analysts’ rating consensus on the stock is a Strong Buy, with an average price target of $64.44, based on TipRanks.com, an upside of 22.16% from the current levels.