Evercore bolsters bullish outlook on Starbucks ahead of earnings
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Evercore ISI analyst David Palmer voiced increased bullishness on Starbucks (NASDAQ:SBUX) just one week ahead of its fiscal third quarter earnings report.

He advised that a faster-than-anticipated rebound in China during the quarter and channel checks that reflect strong June performance motivated him to push his estimates higher. Amid the lockdowns in China, Palmer anticipates a 35% drop in sales across the region for the quarter, up from a previous estimate set at a 50% decline. The analyst consensus ahead of its report anticipates a 43% drop.
Additionally, Palmer suggested the chain likely wields some pricing power, ânudgingâ EPS for the quarter upward and setting a solid path for EPS growth into 2023 alongside technological advancement that could quell labor concerns.

âWe believe that there remains a significant transaction growth opportunity for Starbucks,â he told clients. âWe envision more significant improvement in transaction trends occurring in FY23 as the company makes changes to the bar configuration and technology to bolster production capacity.â

Palmer expects these production changes to also work towards âminimizing unionization riskâ and alleviating a consistent concern for the chain in recent months. As such, he forecast 2023 EPS $3.56, well above the $3.42 Wall Street consensus. 

To be sure, these shifts are slated to take time and leave Palmerâs near-term estimates below consensus. In fact, he anticipates the coffee chain to report third quarter EPS about 8 cents short of consensus. Long term growth and a strong outlook are merely anticipated to counteract any negative reaction to an anticipated bottom line miss.

Palmer maintained a Buy-equivalent rating on the stock alongside a $95 price target. 
Read more on unionization and store closure issues confronting the company.