We expect the coffee giant, Starbucks Corporation (SBUX), to beat expectations when it reports fiscal third quarter 2013 results on Jul 25.
Why a Likely Positive Surprise?
Our proven model shows that Starbucks is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at 1.89%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks #2 Rank (Buy): Starbucks carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks of #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Starbucks’ Zacks Rank #2 (Buy) and 1.89% ESP makes us very confident about a positive earnings beat on Jul 25.
What is Driving the Better-Than-Expected Earnings?
Innovations, better operating leverage, cost control and lower coffee costs are expected to lead to a positive earnings surprise in the upcoming quarter.
We believe that Starbucks has compelling growth drivers like the La Boulange bakery items, Verismo at-home coffee machine, Teavana tea, K-Cups portion packs, its loyalty program and food innovations to sustain earnings momentum in the upcoming quarters.
Other Stocks to Consider
Here are some other companies in the retail/restaurants sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Burger King Worldwide, Inc. (BKW), Earnings ESP of +5.26% and a Zacks Rank #1 (Strong Buy).
Cracker Barrel Old Country Store, Inc. (CBRL), Earnings ESP of +8.15% and a Zacks Rank #1 (Strong Buy).
Jack in the Box Inc. (JACK), Earnings ESP of +2.63% and a Zacks Rank #1 (Strong Buy).
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