Samantha Fischler is a Financial Analyst at I Know First. She is currently a candidate for her bachelor’s degree in Accounting with a Concentration in Finance at Binghamton University.

Starbucks Stock Prediction

Summary

Starbucks released stronger than expected earnings for Q4

Seasonal drinks and promotions to help increase sales

Starbucks won over $400,000 in its lawsuit against artist James Landgraf

Starbucks to double its presence in China

Young consumers are bringing in more revenue than ever before to the coffee industry

I Know First is bullish on SBUX

Upwards of 24,000 stores spread across 74 countries, one of the big names in coffee, Starbucks, has been slowly declining throughout fiscal 2016. The stock price started out at $62.80 at the beginning of November 2015 and at the beginning of November 2016, a share of SBUX was trading for a mere $53.16. However, the stock is starting to reverse its losses and SBUX will continue to rally throughout fiscal 2017.

Bringing in the Big (S)BUX

Last week, Starbucks released its earnings for the 4th fiscal quarter of 2016, surpassing expectations. The company brought in $5.71 billion in revenue with an Adjusted EPS of $0.56. The expectations coming from Wall Street prior to the earnings call were that Starbucks would report revenue of $5.68 billion and EPS would be $0.55. Year-over-year, Starbucks has shown remarkable growth. For the 4th quarter of fiscal 2015, the coffee chain had an EPS of $0.43 on a markedly lower $4.92 billion of revenue. The growth rate for global same-store sales was only at 4%, falling short of analysts’ expectations of 4.9% growth. However, US and China same-store-sales showed growth rates of 5% and 6%, while analysts only expected growth of 4.9% and 5.5% respectively. This quarters strong earnings come after weak earnings in previous quarters and a decline in the profitability of the coffee industry in general. The earnings sent SBUX up 1.89% at the end of the next day of trading after the reports were released.

Get the Extra Cup!

The current fall season brings out seasonal favorites like the famous “Pumpkin Spice Latte,” which brings people flocking to their local Starbucks to get a taste of their guilty pleasure before its out of stock until next fall. The holiday lineup is out as well as the awaited Starbucks holiday cups. Starbucks will be running a promotion which is sure to generate extra revenue. For 5 days, hot, iced, and blended Holiday drinks will be buy 1, get 1 free from 2-5pm. This will draw out potential customers who see Starbuck’s pricing as a major drawback to their quality coffee and drinks because the value of their dollar is being doubled.

Frappachino Prevails over Dabuccino

Here’s the lowdown: James Landgraf, an artist from Oregon, designed a water pipe that looked all too similar to Starbucks’ signature Frappuchino cups and Starbucks wasn’t happy about it. Starbucks argued that Landgraf and Hitman Glass, the website where the bong was sold, “willfully intended to create an association with the Starbucks Marks and to capitalize upon the success and popularity of the Starbucks Marks to sell [their] products.” The bong is called the “Dabuccino” featured a logo very similar to the siren featured on Starbucks’ cups and imitated Starbucks’ signature green straw. The water pipes sold were priced between $200-8,000. The association between the illegal drug marijuana and legal stimulant caffeine is bad for business and Starbucks’ image and Starbucks immediately sought to disassociate its product with weed. A US District Court judge in New York ruled that Landgraf is to repay Starbucks $410,800, including $300,00 for copyright infringement, $99,000 for trademark infringement, and $11,580 to cover Starbucks’ attorney fees. Landgraf did not appear before the court to defend himself nor did he send a lawyer to represent himself, although it is doubtful that either would have changed the judge’s ruling being that according to the presiding judge, Otis D. Wright, “It is clear from public statements … that they intended to create an association with the famous mark…. For example, the Dabuccino Series One bong is advertised as ‘taking inspiration from one of America’s favorite frozen coffee drinks’ and ‘easily relatable.’” The series of bongs is no longer listed on Hitman Glass’s website and while the ruling only applies to Landgraf, Hitman Glass may have to pay up to Starbuck soon.

Image Source: @Fweedom on Instagram

Serving Coffee in Your Finest China

The first Starbucks in China opened its doors in 1991. 15 years later, Starbucks CEO Howard Schultz believes that the Chinese market will be quite beneficial to the coffee company, specifically the buying power of the Chinese people. Starbucks intends to nearly double its Chinese presence by 2021 and have 5,000 stores operating. The chain will have shown extreme growth in China over the course of 10 years, where in 2011, Starbucks only had 400 stores. Belinda Wong recently took over as CEO of Starbucks China and Schultz describes her as being an instrumental part of the growth that Starbucks has experienced in China to date.

Increased Consumption

To further the case for Starbucks, young consumers are bringing in more revenue to the company. The age at which people are becoming coffee drinkers is becoming lower. According to the National Coffee Association, the proportion of people aged 18-24 who drank an espresso-based drink in the past day rose from 9% to 22% from 2008-2016. The proportion grew from 8% to 29% for those aged 25-39 in the same time period. Additionally, there has been a switch from a normal brew to espresso drinks which typically come with a bigger price tag.

Conclusion

I Know First maintains a bullish stance on SBUX for its year-long outlook for 2017. The company shows the potential to rebound from its consecutive quarters of decline and continue to impress and surpass investors’ expectations as it did this past quarter. Starbucks is poised to bring in even more revenue going forward with its strong utilization of promotions and its plans to improve its current position in the Chinese market.

I Know First’s algorithm forecasts how stocks are going to perform for 3 days, 7 days, 14 days, 1 month, 3 months, and a year. In the case of Starbucks (SBUX), the middle row represents the signal strength and the bottom number represents the predictability indicator, the historical correlation which is heavily weighted on the algorithm’s recent predictions. To learn more about how I Know First’s algorithm operates, click here.