Starbucks Stock Forecast: Will the Bucks Keep Coming in For Starbucks in 2016?

zack Zack Tobin is a Financial Analyst at I Know First. 

 

Starbucks Stock Forecast

  • SBUXStarbucks had a great year, increased growth by 46.7%
  • Opening up 500 Reserve Stores This Year
  • Has a Dividend Yield of 1.4%, and a payout ratio of 35%
  • Three Month and One-Year Forecast is bullish

Starbucks corporation is an American Coffee company and coffeehouse chain. It was founded in Seattle in 1971. It is now the largest coffeehouse chain in the world, with 23,450 locations across the globe.  Starbucks didn’t become profitable until the 1980s, but it had a major expansion across North America over the decade.  From 1987 to 2007 it opened an average of two new locations daily.

starbucks stock forecast

Starbucks had a great year in 2015, where it set the record for both revenue ($19.2 billion) and net income ($ 2.8 billion) and had 50% stock appreciation. The most notable reasons for their success came from the decision to expanding their food menu, launching the mobile pay, and opening up reserve stores. The company has maintained an increase of comp sales by at least 5% for astonishing 23 consecutive fiscal quarters.

starbucks stock forecast

If there is one thing that might scare away Starbucks investors, it’s that they already peaked. After increasing their revenue by 46.7% and comp sales by an additional 7%, it would be asking a lot of the company for them to repeat the success they had in 2015.  At this point, Starbucks investors have become spoiled with the amazing success they’ve had in the past 5 years. If that streak of 23 quarters with an of at least 5% in comp sales were to come to an end, then many investors, might be tempted to sell the stock while it’s still high. Can Starbucks continue its incredible run? Let’s take a look.

Reserve Stores

If there is one major gamble Starbucks is taking, it’s their choice to invest in reserve coffee. Reserve coffee is specially brewed at the Starbucks’ Seattle Roastery. The alternative brewing methods used to manufacturer reserve coffee are more expensive, giving the drink a higher price. To give a comparison, a typical an OZ of coffee would sell at the grocery store sell at less than half the price of an OZ of a Starbucks reserve coffee.

After launching the Seattle Roastery at the end of 2014, 2015 was supposed to be the year that reserve coffee was to take flight. With reserve coffee being sold in thousands of stores worldwide, Starbucks had achieved its goal for 2015. There has also been a launch of reserve stores, where the specially brewed drink will be sold exclusively. CEO Howard Schultz plans to open 500 reserve stores in 2016.

The strategy behind the reserve coffee is one definitely for the long term. Starbucks is trying to recreate its image. Now that it has become the 5th largest food and beverage chain in the world, its identity to the public is more similar to a place like Dunkin Donuts, than a high-end coffee house. The hope is to intrigue coffee purists and aficionados who will be looking for more unique, sophisticated coffee. Given the fact that the reserve coffee is currently selling well, and Howard Schultz has proven himself to be an excellent CEO, there is no reason to believe why the reserve stores will flop.

 starbucks stock forecast

Offers a Strong Dividend

Starbucks currently has a low dividend yield of just under 1.4%. However, it has a strong payout ratio of 35%. The yield is annual payout divided by the shared price, so the only reason why the dividend yield is low is because the stock rose so much in the past year.  Considering the rate of growth at 1.4% yield isn’t too bad.

There is also plenty of opportunities for the stock to grow even more. Schulz has stated that he expects to expand more locations in China than in the United States. Considering that the US currently has 6 times many stores as China, the potential in the far east is unfathomable.

It can also gain more revenue with its new mobile app a more diverse menu, and an extended tea brand.  Between these ideas as well as the reserve coffee stores it’s becoming clear that Starbucks is going to be a lot more than just a coffee store. So there is still plenty of opportunities for the stock to grow, making it a great dividend investment.

I Know First SBUX 2016 Forecast

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database and utilizes it to predict the flow of money across 2000 markets. The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

Conclusion

All signs point to more success from Starbucks in 2016. It seems like all of their investments have paid off, and their current ones seem like they will work out as well. Our 3 month and the one-year forecast is bullish for Starbucks. We can observe that the three months forecast has a bullish signal of 37.27 and a predictability of 0.27, The one year forecast has a bullish signal of 57.36 and a predictability of 0.29.

starbucks stock forecast

Starbucks is trying to evolve from a coffee empire to just an empire. If last year is any indicator, then they are on the right path.


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