We walked away from Starbucks' (SBUX) fourth-quarter update confident that the key building blocks of our longer-term cash flow assumptions remain fully intact. While much of the market is focused on near-term noise created by changes in its loyalty program, we believe the company continues to position itself as one of the most dynamic players in the consumer sector with multiple ways to leverage its brand intangible asset and better connect with consumers across multiple channels--lending further support to our wide moat rating. Based on fourth-quarter results and guidance for fiscal 2017, we're not planning material changes to our $63 fair value estimate and view Starbucks as one of the most attractively priced stocks in the consumer space today.

While the move to a dollar-based loyalty program (and subsequent shift in behavior away from order splitting and toward order consolidation) will continue to pressure transaction trends by roughly two points over the first half of fiscal 2017, the more pertinent takeaway for investors is that Starbucks has not seen a material decline in store spending due to these changes (evidenced by the 6% increase in average ticket this quarter). Admittedly, Starbucks isn't immune to the softening traffic trends we've seen across much of the restaurant and retail categories, but we believe the company is making the appropriate investments to enhance its future cash flow drivers. Among the initiatives we're most optimistic about are Starbucks' mobile platform (which should lead to store throughput and one-to-one marketing benefits), new premium Roastery and Reserve store formats, and new channel diversification opportunities (particularly new partnerships that expand its international CPG footprint), each of which has positive top-line and margin expansion implications. In our view, these efforts reinforce our 10-year forecast calling for average revenue growth of 9% and adjusted operating margins exceeding 24% (versus 19.9% in 2016).

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