Starbucks Brewing EPS Growth Through Partnerships: UBS
Americans' craving for coffee is growing and that should be a boon for Starbucks, UBS senior analyst David Palmer told CNBC Thursday.
"One thing about coffee in this country is, behavior is shifting," he said. People are "moving toward the good stuff."
That means that if consumers are not using single-cup coffee machines to brew their joe to their liking at home, they are going to places that will do it for them. Coffee demand helped Dunkin' Brands launch its successful initial public offering Wednesday, while its premium coffee is contributing to sales at McDonald's. (Watch Palmer's comments about McDonald's beverage sales here.)
Starbucks reports its earnings after the bell Thursday.
When it comes to Starbucks "you’re talking about 20-plus percent [earnings per share] growth over the next two-plus years," Palmer said. "Revenue growth should be accelerating" thanks to the company buying Kraft's bag coffee business and its partnering with Green Mountain Coffee on single-serve-brewing "K cups."
"We see very strong growth in K cups coming over the next couple of years," perhaps 10 cents or 20 cents earnings per share growth, Palmer said. "So there is very exciting stuff on that front to go with the good international story they already have."
Palmer, who has a "buy" rating and price target of $41 on Starbucks, said the return of Howard Schultz is one reason the company is doing well.
"Certainly he understands the brand better than anybody and the fact is they couldn’t extend the brand into silly ways within the store," Palmer said. "They had to go outside the store for growth and their brand was a lot bigger than the 7 percent, 8 percent market share of all coffee. They are going for that in a multichannel strategy globally."
WATCH: Michael Farr, of Farr, Miller and Washington, recently offered an opposing view on Starbucks.
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Disclosures:
David Palmer does not own SBUX shares but his family does. SBUX is an investment banking client of UBS.