Morgan Stanley argues that the market has adjusted for Starbucks’ slowed growth rate.
Read more: https://www.thestreet.com/story/14280018/1/starbucks-could-be-poised-for-a-rebound.html
“While investors continue to debate the new long-term growth rate for SBUX, our work shows that the market has already quietly adjusted to a more moderate 12%-17% [earnings growth],” Morgan Stanley analyst Brian Hayes wrote in a note obtained by Barron’s.
Hayes reached this conclusion by analyzing Starbucks’ price/earnings to growth ratio (PEG) relative to its return on invested capital (ROIC), compared to its peers.
“That relationship is relatively linear across our restaurant universe, with higher returns growth commanding commensurately higher multiples vs. growth at low returns,” Hayes explained. “This construct suggests that a reframed long-term growth rate of 12%-17% (vs. 15%-20%) would still yield a fair value at 23x under current conditions.”