Starbucks Is Primed for Postpandemic Success

At its 2020 investor day, wide-moat Starbucks SBUX outlined its expected trajectory through its coronavirus recovery and beyond, anticipating sales growth of 8%-10% and adjusted operating margins of 18%-19% through fiscal 2024, driven by comp growth (4%-5% globally) and increased store productivity, aligning with our expectations. We are not changing our $100 fair value estimate, and we view the shares as fully valued.

Management is optimistic about its postpandemic rebound, and most of the commentary focused on its future after the virus is contained. China, one of its fastest-growing markets, has already seen demand return to prepandemic levels, and the firm has committed to opening an additional 600 stores there this year, with a goal of 6,000 stores by 2023. Beyond China, its sees increased potential for international growth, underpinned by customer engagement levers like its Rewards programs and Mobile Order & Pay, which only exists in a handful of countries currently. The Rewards program, which has been a bright spot for Starbucks throughout COVID-19 (90-day active members up 10%), dovetails well with the Mobile Order option, fostering deeper affinities with existing customers and expanding the base in ways that will benefit Starbucks for years to come. Many of its new innovations are geared toward more effectively monetizing this base, with increased customization options, more drive-thru and mobile pickup-focused stores, and leveraging AI to increase upsell opportunities.

We believe Starbucks is well positioned to meet its goal of 10% annual EPS growth. With the coffee market positioned to grow 25% by 2024 per Euromonitor, and with substantial untapped international potential, opportunities abound, especially as smaller rivals exit the market due to COVID-related disruptions. Starbucks' recent resilience has demonstrated its agility and understanding of its customers, and the company is well situated for future value creation.

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