UPDATE 3-Starbucks shares soar, analysts raise price targets

miércoles 22 de julio de 2009 19:53 CEST
 

   * Shares hit their highest in more than a year
 * Deutsche Bank ups rating to "hold"
 (Adds analyst comments, updates share movement)
 July 22 (Reuters) - Starbucks Corp's (SBUX.O: Cotización) shares shot
up as much as 19 percent to their highest in more than a year,
a day after the world's largest coffee chain posted
higher-than-expected quarterly earnings, prompting several
analysts to raise their price targets.
 Deutsche Bank upgraded its rating on the shares to "hold"
from "sell," citing better cost management and a potential
bottoming of weak top-line trends.
 Starbucks shares were trading up $2.79 at $17.48 Wednesday
afternoon on Nasdaq, after rising as high as $17.59, making
them the ninth-highest percentage gainer on Nasdaq.
 Trading volume jumped to more than 58 million shares, or
nearly five times the 10-day moving average. The shares were
the third most active on Nasdaq.
 Starbucks ground out an expectations-topping quarterly
profit on Tuesday as it began reaping rewards from slashing
costs and closing stores. [ID:nN21362287]
 "Financial discipline and ability to stabilize earnings
have been better than expected, value initiatives have
improved, and historical focus on store-led growth is gone,"
Deutsche Bank analyst Marc Greenberg wrote in a note to
clients.
 The analyst, however, said he continued to regard the
competitive threat to Starbucks from McDonald's Corp (MCD.N: Cotización) as
onerous, and its core positioning in "affordable luxuries" as
vulnerable.
 But Starbucks' ability to manage against these challenges
has been better than expected, Greenberg said, adding that a
new level of financial discipline -- regardless of competitive
pressures -- may enable better earnings visibility.
 "In short, we continue to have concernsabout competition
and product positioning, but no longer regard the model as
fundamentallyflawed," wrote Greenberg, who raised his price
target on the stock to $14 from $9.
 Analysts at RBC and Goldman Sachs said that Starbucks' 2010
earnings outlook seemed "conservative."
 Starbucks expects earnings growth of 13 percent to 18
percent in 2010, excluding restructuring charges, which equates
to earnings of 84 to 89 cents per share, RBC Capital Markets
analyst Larry Miller said.
 Miller said the outlook may be conservative given the
margin improvement expected at its U.S. and international
businesses.
 "We believe this estimate bakes in potentially conservative
forecasts around sales and commodity costs and expect consensus
numbers to move near or above the high end of the range (our
estimate goes from 85 cents a share to 95 cents a share),"
Goldman Sachs wrote in a note to clients.
 CONCERNS REMAIN
 However, even as they praised Starbucks fiscal
third-quarter performance, analysts expressed concern about the
company's ability to sustain the moderating decline in sales at
stores open at least 13 months it saw in the quarter.
 Given the high levels of competitive discounting and its
lack of pricing power, there is concern about Starbucks'
ability to sustain improved same store sales, RBC's Miller
said.
 "We remain concerned that SSS (same store sales) trends
will remain pressured, particularly during the summer," UBS
wrote.
 Goldman Sachs also said the brand was seeking to shift its
"aspirational image" with "value offerings," but questions
remained as management was short on specifics.
 The following table lists the revised price targets on
Starbucks shares. --
 BROKERAGE            PRICE TARGET          RATING
                      NEW      OLD
 ----------------------------------------------------
 UBS                  $16      $13         Neutral
 RBC                  $16      $13         Sector Perform
 JEFFERIES            $16      $14         Hold
 GOLDMAN SACHS        $17      $13         Neutral
 BARCLAYS             $15      $11         Equal Weight
 DEUTSCHE BANK        $14      $9          Hold
 (Reporting by Vidya Lakshmi and Mihir Dalal in Bangalore;
Editing by Himani Sarkar)