Starbucks Earnings: Reinvention Plan Bears Fruit but Tough Macro Clouds Near-Term Prospects

Wide-moat Starbucks posted solid third-quarter earnings, with margin leverage leading management to reiterate its 15%-20% adjusted EPS growth target for fiscal 2023, which we view as achievable. The firm's $9.17 billion in sales and $1.00 in adjusted EPS met and edged our $9.17 billion and $0.88 estimates, respectively, with robust (10%) global comparable-store sales growth underpinned by strength in beverage modifiers, a growing food attach rate, incremental delivery sales and a traffic recovery abroad. While we continue to view the firm as well-positioned to navigate the current environment, we struggle to see it achieve its 7%-9% three-year comparable-store sales targets as industry traffic remains pressured (down about 2% over the past three months, per Revenue Management Solutions). On balance, we expect minimal changes to our $104 intrinsic valuation, leaving shares trading in a range we'd consider fairly valued. We're also changing our Morningstar Uncertainty Rating to Medium from High, consistent with our quantitative framework.