Morgan Stanley (NYSE:MS) expects Starbucks Corporation (NASDAQ:SBUX) to post strong third quarter results primarily in the United States. Analysts John Glass and Jake Bartlett expect an improvement in the long term outlook owing to a 10 percent decline in coffee prices this quarter.

Starbucks

3Q estimates from Morgan Stanley

Morgan Stanley expects an EPS of 54c (versus Street 50-53c guidance), which is an increase of 26 percent year over year, assuming that U.S. comps will have a growth rate of 6 percent. Shares have surged recently, but analysts say that it is unlikely that there will be any growth in the quarter. However, some upside may be expected due to “excitement building over possibilities for food” along with added loyalty benefits.

Third quarter operating margins for Starbucks Corporation (NASDAQ:SBUX) are expected to rise 160 basis points to 16.5 percent on lower coffee bean prices, store level operating efficiency and the previous year’s third quarter sales-related miss.

Regional estimates for Starbucks

Geographically, margins in the United States are expected to increase 190 basis points, carrying the momentum gained in the previous quarter. China Asia Pacific (CAP) is expected 9 percent SSS. EMEA is expected -1 percent SSS due persistent weakness in the macro environment. Channel Development revenue growth is expected to be “constrained” due to HSD as packaged coffee sales declined on lower pricing.

Items to watch for

For 2014, analysts are expecting EPS to be in the range of 15-20 percent, which is slightly conservative considering further commodity moves, lapping dilution from acquisition and spending LY, and recent pricing actions.

Starbucks Corporation (NASDAQ:SBUX) has not given any guidance on “green coffee” benefits even after a consistent decline of 30 percent in the commodity, so any update on this will be interesting to watch. Investors can also look for an update on the Boulange rollout, which was around 400 last quarter, and probable updates on the settlement with Kraft, along with a possibly related leverage event.

Morgan Stanley gives a 2014 EPS estimate of $2.62, which is an increase of 21 percent year over year. For 2015, EPS is estimated at $3.10 increase 18 percent year over year. The Morgan Stanley report gives an‘Overweight rating to Starbucks Corporation (NASDAQ:SBUX) and raises the price target to $70 from $69.