Starbucks' 4Q15 Earnings: What Can Investors Expect?
So far, we discussed the key metrics that impact Starbucks’ (SBUX) performance. Now, let’s look at how these factors have affected its PE (price-to-earnings) multiple. We’ll also see where Starbucks’ peers are trading.
A company’s PE multiple is measured by calculating its current price over its EPS (earnings per share) estimates for the next four quarters. While the PE multiple is a good valuation multiple that can be used to compare companies with stable earnings, it has some disadvantages. For example, PE multiples don’t consider the amount of a company’s excess cash and cash equivalents.
Starbucks’ PE multiple
- Currently, Starbucks is trading at a PE multiple of 33.3x. This is a historical high, as you can see in the above chart.
- This is primarily due to higher optimism about the growth the next four quarters.
- The traffic growth in the Americas segment rose since last two quarters. This pushed up the same-store sales growth in both quarters. It could be why there’s optimism about the upcoming quarter.
- Starbucks’ valuation hit a low of 23x in October 2014. The company has traded at an average of 25x over the past five years.
- If the company fails to meet the growth expectations in 4Q15, the stock will see selling pressure and the valuation multiple could fall.
Currently, Starbucks forms about 2.3% of the iShares Global Consumer Discretionary (RXI).
Peers’ PE multiples
- The peers in the above graph are trading at an average PE multiple of 24x.
- Yum! Brands (YUM) is trading at a PE multiple of 21x. Yum! Brands’ valuation multiple reached a high of 26x in May 2015 on hopes that China would deliver a significant recovery in 3Q15. However, that didn’t happen. The valuation multiple fell to 19x, its lowest point, in October 2015.
- Dunkin’ Brands (DNKN) is trading at a valuation multiple of 19x. It’s trading at the lowest point. In April 2015, Dunkin’ Brands’ valuation multiple reached a high of 28x.
- McDonald’s (MCD) is trading at a multiple of 21.5x. This is the highest level that the company has traded at for the past four years. In October 2014, Starbucks’ valuation multiple hit a low point of 16x.
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