Starbucks (SBUX.US) is set to release its fiscal 2026 fourth-quarter earnings on October 29. In a research note published recently, Morgan Stanley said the company's U.S. market revenue performance in Q4 remains solid and maintained its forecast of 7% same-store sales growth.
The bank raised its earnings per share (EPS) estimates for Starbucks' Q4 and fiscal years 2026-2028, noting that operating leverage and margin upside will be the key to fiscal 2027 results. After a recent pullback, the stock's appeal has improved, though the market remains divided on the name. Ahead of the earnings release, the bank kept its "overweight" rating on Starbucks with a price target of $115. That target implies roughly 23% upside from the stock's Wednesday closing price of $93.25.
Morgan Stanley's View
Morgan Stanley noted that market opinion on Starbucks remains split. To some extent, the bank had previously expected the stock to stay range-bound before an earnings recovery took hold, and that recovery is still in its early stages.
The bank believes this has more to do with broader industry and consumer-level issues, and may also reflect some slowing in Starbucks' growth toward the end of the quarter, but it does not see this as a risk to its forward earnings forecasts.
Morgan Stanley said Starbucks' fiscal 2026 revenue performance beat market expectations, and until recently the stock had been performing well. Given these conditions, the bank believes there is not much new in the core market debate looking ahead — as large-scale labor investments enter the comparison base while cost-cutting programs continue to advance, the key for fiscal 2027 will be operating leverage and margin upside. Commodity prices could pose some risk to this expectation, though coffee prices are moving in a favorable direction. An earnings beat will be the key driver of share price gains, and Morgan Stanley believes this is achievable under current circumstances.
The bank expects fiscal 2027 guidance to position EPS in the low $3 range (Morgan Stanley forecasts $3.18, versus a consensus estimate of $3.15), and from that base to gradually move toward a fiscal 2028 EPS target of $3.35–$4.00. With Starbucks shares having pulled back to valuation multiples the bank considers more normal, it believes the current share price does not fully reflect the earnings rebound consistent with its own forecasts, nor the high end of the company's target range.
Q4 Revenue: North America Same-Store Sales Growth Maintained at 7%
For Q4 revenue performance, Morgan Stanley maintained its forecast of 7% North America same-store sales growth, slightly above the consensus estimate. Based on the bank's reading of third-party data and a product launch cadence during the quarter that still supports this forecast — and may even be slightly better than expected — this could provide support for the stock.
The quarter included several notable new product launches. Among them, the limited-time return of the Unicorn Frappuccino drove Starbucks' best-ever weekend for company-operated store sales in North America, while the fall menu launched on August 25 became the strongest fall product launch in company history.
Morgan Stanley raised its international same-store sales growth forecast to 3% from 2%, with international markets currently covering a relatively limited number of stores. In addition, Morgan Stanley incorporated into its model the roughly 250 North American store closures Starbucks announced at the end of the quarter. Given the timing, these closures will have essentially no impact on Q4 sales, while the lower store count will be reflected in fiscal 2027 results.
Performance during the quarter appears to have been strongest at the start, though Morgan Stanley believes recent trends still support fiscal 2027 Q1 same-store sales at or above the consensus estimate, which currently stands at 4.7%. Store closures will play a role here — the benefit from last year's closures will gradually fade, and the new round of closures may also have some impact.
Q4 Earnings: EPS Estimates Raised, FY26/27/28 All Increased
For Q4 earnings, Morgan Stanley raised its Q4 EPS estimate to $0.71 from $0.67, in line with the consensus estimate; it also raised its FY26/FY27/FY28 EPS estimates to $2.62/$3.18/$3.70 from $2.58/$3.07/$3.67. As last year's labor investments enter the comparison base, operating leverage could provide some upside. Most of this revision reflects the structural changes from the international joint venture being more fully captured in the bank's model, while its view on North America margins is largely unchanged.
Morgan Stanley added that the roughly 250 North American store closures in the final week of September have already been incorporated into its fiscal 2027 store count and revenue forecasts, including the offsetting effect of some sales transfer. But because these closures occurred at the end of the quarter, they have essentially no impact on fiscal 2026 Q4.
Morgan Stanley also rolled its valuation base forward to calendar 2028, though using a lower multiple — cutting it to 30x from 35x — while keeping its price target unchanged at $115. The bank believes this multiple will trend lower as Starbucks achieves healthier margin levels and more normalized growth. If investors take a bullish view, 2028 may still be a year in which earnings potential is not fully unleashed, but performance should be closer to underlying levels. The bank agrees with the view that at this stage, the upside for the stock will mainly come from earnings beats.
Views on Fiscal 2027 Guidance
Fiscal 2027 same-store sales guidance will likely start at a level above 3%, though Morgan Stanley believes performance at the start of fiscal 2027 could be above that level, and Starbucks will likely provide guidance on this, and the bank believes actual results need to be better than that for the stock to perform well next year. This still implies growth can slow somewhat from current trends. The bank currently expects fiscal 2027 North America same-store sales growth of 4.4%, slightly above the consensus estimate of 4%.
Key drivers for fiscal 2027 include store renovations, continued optimization of service/technology/marketing, possible further improvement in the food business, and possible modest price increases. International market performance may be somewhat lower. Year-to-date international same-store sales growth is currently about 4%, versus 6% in North America. Morgan Stanley expects part of this gap to persist in fiscal 2027, and therefore expects international fiscal 2027 same-store sales growth of 3.4%, slightly above the consensus estimate of 3.1%.
With the sales recovery now more firmly established, Morgan Stanley believes the bigger debate for fiscal 2027 will shift to profit flow-through, since the largest investments have entered the comparison base. The bank expects fiscal 2027 EPS of $3.18, above the consensus estimate of $3.15. It believes the company could issue EPS guidance of roughly $2.90–$3.30, which would serve as a transition stage from this year's $2.55–$2.65 (a figure that has been gradually raised during the year) toward the fiscal 2028 target of $3.35–$4.00.
Margin expansion should be driven by the following factors: operating leverage from sales growth, the ongoing $2 billion cost savings program, Green Apron Service investments entering the comparison base, and lower coffee prices. However, continued reinvestment in staff will partly offset these benefits.
On store count, Morgan Stanley expects store development to gradually accelerate after the roughly 250 North American store closures at the end of fiscal 2026 Q4, with system-wide growth rising to about 3% in fiscal 2027 from an estimated roughly 1% in fiscal 2026, and gradually moving toward about 5% in later years of the model forecast period. The U.S. market is unlikely to begin accelerating expansion before fiscal 2028 (and whether such expansion can reach a meaningful scale remains debated), but since store closures occurred in both U.S. and overseas markets during fiscal 2026, the scale of closures in fiscal 2027 should be somewhat reduced.
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