Starbucks' (Nasdaq: SBUX) Stock Upgraded After Earnings Beat DNKN

SBUX StockStarbucks Corp. (Nasdaq: SBUX) stock saw analyst upgrades today (Friday) after posting stronger-than-expected earnings Thursday.

Jefferies, JPMorgan Securities, and Buckingham lifted price targets on SBUX stock to $88, $85, and $96 respectively. SBUX was trading around $78 Friday mid-day.

Indeed, in the battle of the brews, Starbucks is handily winning over Dunkin' Brands Group Inc. (Nasdaq: DNKN).

While Dunkin' has die-hard fans in New England, and Starbucks is easily consumers' favorite on the West Coast, quarterly earnings posted Thursday from the two java giants is clear evidence of Starbucks' lead.

Here's a look...

Starbucks Earnings Overview and SBUX Stock Upgrades

Starbucks reported its 18th consecutive quarter of same-store sales gains of 5% or more when the Seattle-based coffee titan reported third-quarter numbers after Thursday's close.

SBUX earned a profit of $512.6 million, or $0.67 per share, in its fiscal Q3 ended June 29. That was up from $417.8 million, or $0.55 a share, in the same quarter a year ago. It was also ahead of the company's projection of $0.64 to $0.66 per share for the quarter, as well as a penny better than analyst forecasts.

Revenue rose 11% to $4.15 billon, beating the expected $4.14 billion. Operating margins improved to 18.5% from 16.5%.

Sales in the Americas climbed 6%, driven by new food and beverage offerings and not increased prices. Price boosts accounted for just 1% of check growth.

Sales in Europe, the Middle East, and Africa increased 3%. Sales in China and the Asia-Pacific region rose 7%, "a stunning achievement," Chief Executive Officer Howard Schultz said Friday in a CNBC interview. Starbucks now has 1,300 stores in China and is just starting to crack the morning (tea) ritual in the region, Schultz added.

Helping Starbucks grow profits in Q3 was an overhaul of its Tevana drinks and La Boulange baked goods. Breakfast sandwiches sales jumped 40% in the quarter.

Here's what's in the works for Starbucks to ensure strong profits moving forward...

As mid-day continues to deliver the most activity for same-store sales, SBUX plans to bulk up lunch offerings. The company said its lunch menu, in the process of being revamped, will look very different by the end of 2015.

The company continues to open more stores. SBUX opened 344 new stores globally in Q3, including its first 24-hour store in Beijing. SBUX now has 20,863 stores peppered across 64 countries. By the end of September, SBUX will increase store count in the Americas by 50 to 650, with 1,600 new stores expected worldwide.

Starbucks is adept at managing worldwide commodity prices better than most and had hedged about 60% of its coffee prices for next year. And although Starbucks is a coffee company at its core, it's also a true innovator.

In 2012, Starbucks became the first major retailer to launch mobile payments when it let customers use an app to pay for in-store purchases. Thursday, Schultz said the company plans to launch a "mobile order and pay initiative" in "a major U.S. market" this year. Under the pilot program, customers would be able to place their orders online for pickup, a move aimed at cutting wait times and retaining customers.

For the coming fiscal year, Starbucks expects per-share earnings growth of 15% to 20% and revenue growth of at least 10%. That was a tad shy of analyst projections of 18% and 11% respectively and was why shares slipped following the report.

Still, the consensus rating on SBUX remains bullish. The average recommendation among 28 industry experts is "Buy" with an average price target of $88.78, according to MarketWatch. That's a 10% upside from Friday's $79.09.

Dunkin' Brands' latest earnings, meanwhile, weren't nearly as strong...

DNKN Earnings Disappoint

Pressured by bad weather and tight consumer spending, Dunkin's Q2 sales were lower than expected.

"Second-quarter sales growth was below our expectations, with Dunkin' Donuts U.S. comparable store sales not accelerating as fast or to the degree that we anticipated after a difficult first quarter," said CEO Nigel Travis.

The parent company of Dunkin' Donuts and Baskin-Robbins posted a profit of $46.2 million, or $0.43 a share. That was up from $40.8 million, or $0.38 a share year over year (YOY). Revenue came in at $190.9 million, up 4.6% YOY.

Both numbers, however, widely missed analyst expectations of earnings per share of $0.47 on revenue of $198.5 million.

Same-store sales in the United States rose 1.8% at Dunkin' Donuts shops and 4.2% at Baskin-Robbins. International same-store sales slipped at both shops by 3.1% and 1.6% respectively.

In a "wake up and smell the coffee" move, Dunkin' will begin to muscle in on territory traditionally dominated by Starbucks. Its first California doughnut shop is slated to open by the end of 2014, ahead of previous expectations for early next year.

Dunkin' is also attempting to speed up services at its shops, especially during early hours, when Dunkin' gets 80% of its sales. Prep stations have been redesigned to meet busy morning schedules. And bowing to a notable customer shift from carbs to healthier, more protein-filled items, as well as increasing competition, Dunkin' is creating some new menu items.

These changes will take some time to show meaningful results. Plus, the company's forward outlook isn't very inspiring for investors.

Citing weak U.S. same-store sales and low performance by its Baskin-Robbins joint venture in Japan, in addition to lower than anticipated profits from international ice cream sales, Dunkin' trimmed its earnings and sales targets for the full year. Dunkin' expects FY2014 EPS of $1.73 to $1.77, below its prior forecast of $1.79 to $1.83 a share.

Dunkin' also lowered its sales targets for the year, now expecting revenue growth of 5% to 7%, compared to previous predictions of 6% to 8% growth. Same-store sales for U.S. Dunkin' Donuts stores, meanwhile, are expected to grow 2% to 3%, below the company's previous forecast for 3% to 4% growth.

DNKN stock shed 1.95% to $42.02 Thursday following the report.

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