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When Will Starbucks Overtake McDonald's In Market Cap?

SBUX, MCD | December 8, 2016

Following Starbucks Corporation (NASDAQ: SBUX)'s biennial Analyst Day, Nomura said it continues to believe the company will eventually overtake McDonald's Corporation (NYSE: MCD) as the U.S.-bases restaurant company with the largest market capitalization.

Starbucks currently has a market capitalization of $85.78 billion compared to McDonald's $99.87 billion. The two parameters that go into the calculation of market capitalization are number of outstanding shares and market price.

Starbucks has 1.46 billion shares outstanding, while McDonald's count is 830.40 million. Nomura's price target for Starbucks is $70 and $139 for McDonald's.

Assuming there are no stock offerings or buybacks planned by both companies and a market capitalization of 115.43 billion for McDonald's in a 12-month time horizon (based on Nomura's price target), Starbucks shares have to trade above $79 if it were to overtake McDonald's in terms of market capitalization. This suggests over 34 percent upside from current levels or a valuation multiple of 37 times. This doesn't look farfetched, given the industry's P/E multiple of 38.6.

Unit Count Expansion Target Commendable

Analyst Mark Kalinowski said he was pleased to see the company expanding its unit count target to 37,000 by the end of 2021, up from 25,085 at the end of 2016. This, according to the analyst, compares to the 30,000+ unit count 2019 year-end target it had two years ago.

Nomura also noted that Starbucks reiterated its annualized targets of 10 percent revenue growth, mid-single-digit same-store sales expansion and 15–20 percent EPS growth. CEO Howard Schultz forcefully stated that he does not share the Street's current concerns over a slowdown in the U.S. comps, the firm added.

Nomura rates shares of Starbucks a Buy, with a $70 price target.

At last check, McDonald's shares were up 0.69 percent at $120.70, while shares of Starbucks were up 0.36 percent at $58.97.