Is Starbucks Set To Steal McDonald’s Crown?

Wall Street is anticipating something of a changing of the guard in the world of quick-service restaurants. The longtime title holder McDonald’s looks set to be displaced by Seattle-based coffee empire Starbucks.

Starbucks saw its shares drop off 7.5 percent in 2016, as investors became concerned that same-store sales were on the decline as the year gave way into its second half. There were also concerns about the fate of the firm after the departure of long-term CEO Howard Schultz (Schultz will stay on as executive chairman).

But the discount in share price might entice investors — particularly if Starbucks can stick to its steady growth trajectory projected for 2017. Starbucks is also planning to expand its store footprint 8 percent over the course of the next nine months and grow worldwide sales about 5 percent. With a growing presence, Starbucks could see revenue expand in the double digits and earnings per share increase 12 percent, according to Nomura Analyst Mark Kalinowski.

Starbucks does have hurdles in 2017 as well, according to Kalinowski, including “consistent same-store sales, unit growth potential and ongoing innovation.” But Starbucks does have the benefit of being in something of a class by itself with its primary focus on beverages (whereas competitors tend to focus in on food).

Starbucks is also unique in how long and how consistent its growth has been. For 26 of the past 28 fiscal years, it has achieved same-store sales growth of at least 5 percent and appears on track to extend that streak during the current financial year.

“We believe that it is only a matter of time before Starbucks overtakes McDonald’s as the largest market cap restaurant stock, although likely not in 2017,” according to Kalinowski.

Why not this year? According to watchers, the coffee chain has some ways to go, with a market cap of around $80 billion to McDonald’s $98.7 billion.

However, if Starbucks can hit its goal of expanding its number of units by more than 8 percent every year until 2021, it at least has a chance to steal McDonald’s top spot.