Starbucks: Consistent Growth despite Challenges

Starbucks Corporation (SBUX) is one of the most iconic consumer brands in the world, counting more than 33,200 stores globally. The company purchases and roasts high-quality coffees, which it sells Read More... The post Starbucks: Consistent Growth despite Challenges appeared first on TipRanks Financial Blog.

Starbucks: Consistent Growth despite Challenges

Starbucks Corporation () is one of the most iconic consumer brands in the world, counting more than 33,200 stores globally.

The company purchases and roasts high-quality coffees, which it sells together with handcrafted tea, and a mixture of high-quality food items through both its company-operated and franchised stores.

In addition to its flagship Starbucks Coffee brand, the company offers its food and beverages through its other brands, including Teavana, Seattle's Best Coffee, Evolution Fresh, Ethos, Starbucks Reserve, and Princi.

While Starbucks was notably impacted by the adverse impact of COVID-19 in the retail and restaurant industries, the company managed to not only sustain robust results, but actually come out stronger.

While the stock is up 37.3% over the past 12 months, Starbucks likely remains an attractive dividend growth play, considering its ongoing developments. I am bullish on the stock. (See SBUX stock charts on TipRanks)

An Improving Performance

In late July, Starbucks reported its Q3 2021 results, with numbers coming in strong. Net revenues were $7.5 billion, suggesting a 78% increase versus the comparable period last year.

Specifically, global comparable sales grew 73%, powered by a 75% growth in comparable transactions, slightly offset by a 1% drop in each average ticket.

The massive increase in sales was attributed to COVID-19-related restrictions easing globally, and consumers' spending habits returning to normal. To put Starbucks' recovery into perspective, the $7.5-billion Q3 revenues were the highest quarterly revenues in the company's history.

Consequently, adjusted earnings per share came in at $1.01 against a loss of $0.46 in Q3 2020, due to the one-off expenses the company had to undertake in the midst of the pandemic.

In parallel with the company's recovery, Starbucks continued to expand its global presence. During the quarter, Starbucks opened 352 net new stores, lifting its total locations to 33,295 stores globally. Of these, 50.6% and 49.4% were company-operated and licensed, respectively.

Management felt confident enough to hike its FY2021 guidance, expecting 18% to 21% global comparable sales growth, and reiterated around 2,150 new store openings.

The company now expects $29.1 billion to $29.3 billion in net revenue (previously $28.5 billion to $29.3 billion), and adjusted EPS of $3.20 to $3.25 (previously $2.90 to $3).

Valuation, Dividend Growth

At its current share price, Starbucks is trading at around 35 times management's EPS guidance. That's notably higher than the stock's historical average. Then again, analysts expect double-digit EPS growth in the medium-term, which somewhat explains the current premium.

Robust EPS growth in the medium-term should also be able to sustain Starbucks' double-digit DPS growth. The company's three-year DPS CAGR (Compound Annual Growth Rate) stands at 12.6%. At its current annual DPS of $1.80, the payout ratio comes at 55% at the midpoint of management's guidance.

Hence, future hikes should be rather comfortable, combined with Starbucks' expected EPS growth. The current yield of 1.51% is not that enticing, but considering the company's growth prospects, it makes for a nice addition, in terms of the stock's total shareholder return potential.

Wall Street’s Take

Turning to Wall Street, Starbucks has a Moderate Buy consensus rating, based on 13 Buys, five Holds, and zero Sells assigned in the past three months. At $132.23, the average SBUX price target implies 16.6% upside.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Starbucks: Consistent Growth despite Challenges appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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Bank Of America: Buying Back Stock in Bulk

Bank of America (BAC) is one of the biggest financial institutions worldwide, serving millions of individual consumers, businesses, and governments. The company offers a wide range of financial services, including Read More... The post Bank Of America: Buying Back Stock in Bulk appeared first on TipRanks Financial Blog.

Bank Of America: Buying Back Stock in Bulk

Bank of America () is one of the biggest financial institutions worldwide, serving millions of individual consumers, businesses, and governments.

The company offers a wide range of financial services, including banking, investing, asset management, and risk management services.

Bank of America is currently the second-largest U.S. diversified bank in terms of market cap. Valued at $349 billion, it comes after only JPMorgan Chase & Co. (). Banks are benefiting greatly from the ongoing excess supply of cash.

The monetary policy, and stimulus check frenzy, act as a great growth catalyst that keeps boosting its financials. Bank of America's latest results clearly reflect this. I am bullish on the stock. (See BAC stock charts on TipRanks)

Cheap Interest Rates, Strong Profitability

The dead-cheap (and continuously declining) interest rate climate has caused investors in the banking industry to worry for years now.

Generally, a decline in interest rates leads to compressed lending margins for banks. Low rates tend to flatten the yield curve, which usually unfavorably impacts net interest incomes, echoing the fact that banks aim to borrow short-term, and lend long-term.

Bank of America and its peers have felt the agony of lower rates, and the company's most recent quarter again reflected this. In Q2 2021, Bank of America's net interest income declined 6% to 10.2 billion.

Still, the company managed to deliver a net income of $9.2 billion, the highest quarterly bottom line in its history. This was driven by robust growth in consumer deposits, which grew 21% to $979 billion, lower credit costs, a $3.7-billion improvement in provision for credit losses, and record consumer inflows in investment products.

Massive Buybacks to Boost EPS

Since suspending buybacks during the Great Financial Crisis, Bank of America has been gradually boosting repurchases, rewarding its shareholders richly.

In 2019, the company's repurchases hit a record of around $28 billion. While management paused buybacks in the early stages of the pandemic to be prudent, it has started reaccelerating them. In Q2, buybacks amounted to $4.21 billion.

Considering the bank's record profitability, buybacks could reasonably return to the $7-billion range per quarter. Assuming a reasonable return to $28 billion per year, the company would be buying back around 8.3% of its shares outstanding each year at its current market cap.

Hence, not only should EPS considerably benefit from buybacks, but along with the stock's dividend yield, which currently hovers at around 1.9%, shareholders should enjoy a capital return yield north of 10%.

Valuation

Bank of America is currently trading at 14 times its next 12-month net income, which should be a rather reasonable multiple.

Besides the excess supply of cash during these times, which should continue benefiting the company through more deposits and investor inflows, its aggressive buybacks should act as a strong EPS catalyst, as mentioned above.

Strong dividend increases ahead should also incentivize investors to keep buying the stock at its current levels, which should prevent a valuation compression. The company's latest DPS hike was by an impressive 17%, after it successfully passed its stress tests.

Wall Street’s Take

Turning to Wall Street, Bank of America has a Moderate Buy consensus rating on the stock, based on six Buys, four Holds, and one Sell assigned in the past three months. At $42.32, the average BAC price target implies 7% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Bank Of America: Buying Back Stock in Bulk appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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