Starbucks Is Up By 7%, Here Is Why

Key Insights

  • Starbucks reported quarterly results, whcih were mostly in line with analyst expectations. 
  • The company had a strong quarter in the U.S.
  • Starbucks stock had recently declined to reasonable valuation levels, but it will likely need more positive catalysts for sustainable upside. 

Starbucks Stock Rallies As Weakness In China Is Offset By Strong Sales In The U.S.

Shares of Starbucks gained strong upside momentum after the company released its quarterly results. Starbucks reported revenue of $7.6 billion and adjusted earnings of $0.59 per share, mostly in line with analyst estimates.

The company noted that global comparable store sales increased by 7%. In North America and U.S., comparable store sales increased by 12%. Meanwhile, China comparable store sales declined by 23% due to the negative impact of coronavirus-related lockdowns.

The surprising strength of Starbucks’ business at home offset the problems in China and provided significant support to the company’s stock. It should be noted that Starbucks stock was down by more than 35% year-to-date before the release of the report, so market’s expectations were low.

What’s Next For Starbucks Stock?

Analysts expect that Starbucks will report earnings of $3.22 per share in the current fiscal year and earnings of $3.73 per share in the next fiscal year, so the stock is trading at 21 forward P/E.

Analyst estimates have been moving lower in recent months, which is not surprising as analysts reacted to the company’s problems in China. It remains to be seen whether the recent quarterly report will be able to change this trend.

While Starbucks valuation has declined to reasonable levels, the stock’s near-term dynamics will depend on general market sentiment. In case the market’s pullback continues, Starbucks stock will also find itself under pressure as it does not have enough positive catalysts to go against the general market trend.

For a look at all of today’s economic events, check out our economic calendar.

Starbucks CEO Confirms Arrival to the Metaverse With NFTs This Year

Key Insights:

  • Howard Schultz was recently re-appointed as the CEO of Starbucks.
  • He stated that soon Starbucks would incorporate NFTs and Metaverse into their marketing strategy.
  • The involvement of brands and companies in the virtual world is growing at an unprecedented rate.

Starbucks‘ former CEO, Kevin Johnson, who took the baton from Howard Schultz in 2017, passed it back to him last month. And within a month, Howard Schultz has already revealed what he intends to do for the company going forward.

Starbucks Goes to the Metaverse

At an open forum day before yesterday, Howard shared the plans for Starbucks’ future in front of an audience of 15,000 people.

Of the many announcements, one of them was focused on how the company would be piggybacking on the rising hype and fame of the NFTs and the Metaverse to build a name for their brand in the virtual world.

Discussing what digital innovation has been planned using NFTs, Howard said,

“If you look at the companies, the brands, the celebrities, the influencers that are trying to create a digital NFT platform and business, I can’t find one of them that has the treasure trove of assets that Starbucks has from collectibles to the entire heritage of the company.”

Howard also said that the chain is equipped with the resources and knowledge necessary to establish itself in the virtual ecosystem. While the plans were discussed, no date was given when Starbucks would become a part of this world.

Along with this, Howard shared another important announcement that Starbucks will also be suspending the company’s stock repurchase program and instead investing in Starbucks’ partners and stores. Stating why, the CEO said,

“I am not in business … to make every single decision based on the stock price, or the quarter, or EPS, or adding shareholder value at the expense of our people or our customers.”

Is It Getting Too Much?

The thing with successful technology is that while it takes some time to gain an audience, everyone wants a slice of it once it does. When it comes to NFTs, crypto, and Metaverse, that is precisely what is happening right now. 

Even though the purpose of Metaverse is to create a decentralized world where anyone and everyone can participate, it doesn’t make sense for a coffeehouse to be in it as well.

Fashion, accessories, and music shows can be incorporated into the virtual world, but a cup of coffee cannot. 

In the case of NFTs, on the other hand, whether or not the space is a bubble, it is for sure a viral marketing gimmick that eventually might lose interest if it is saturated with too many collections. 

Starbucks Radioactive after CEO Suspends Buybacks

Starbucks Corp. (SBUX) shareholders cheered news that founder Howard Schultz would return as interim CEO but had second thoughts after his first official act on Monday was to suspend the highly popular stock repurchase plan, in order to “invest more into people and stores”. The stock fell 3.7% after the news, marking a significant failure at 50-day moving average resistance just above 90 while exposing another decline into March’s seven-month low at 78.92.

Unionization Could Now Accelerate

Eight Starbucks locations have now voted to unionize, with the latest in Arizona in March. Workers rights advocates cheered the news but investors are rightfully worried that already razor-thin margins will contract even further, reducing profitability. The buyback suspension eliminates one major defense against lower quarterly earnings, inducing many shareholders to dump positions and look for better investment opportunities.

Chairperson Mellody Hobson stood up for Schultz’s interim appointment in March, admitting that Starbucks “made some mistakes” in dealing with organizers. As she noted, “We are also negotiating in good faith, and we want a constructive relationship with the union. When you think about, again, why we’re leaning on Howard in this moment, it’s that connection with our people where we think he’s singularly capable of engaging with our people in a way that will make a difference”. Sadly, ‘that difference’ may not benefit long-term investors.

Wall Street and Technical Outlook

Wall Street has been painfully slow in computing the bearish impact of Starbucks unionization on quarterly profits, maintaining a lofty ‘Overweight’ consensus based upon 16 ‘Buy’, 3 ‘Overweight’, 15 ‘Hold’, and 0 ‘Sell’ recommendations. This disconnect with Main Street reality is even more prominent in current price targets, which range from a low of $95 to a Street-high $135, because the stock is set to open Tuesday’s session more than $8 below the low target.

Starbucks broke out above the 2019 peak at 99.72 in November 2020, entering an uptrend that hit an all-time high at 126.32 in July 2021. The subsequent decline completed a head and shoulders breakdown in January 2022 and reached the measured move target near 80 in March, ahead of an uptick that’s now reversed at the 50-day moving average. Accumulation has dropped to the lowest low since January 2019, when the stock was trading in the 60s, indicating the downtrend remains fully intact.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why Starbucks Stock Is Down By 5% Today

Key Insights

  • Starbucks suspends its buyback program. 
  • Earnings estimates continue to trend lower, which is bearish for the stock. 
  • Starbucks shares will need additional upside catalysts to break the current downside trend. 

Starbucks Stock Falls As The Company Suspends Its Stock Buyback Program

Shares of Starbucks  found themselves under pressure after the company announced that it would suspend stock buybacks.

Howard Schultz is returning as CEO, and this is his first major decision. The company is under pressure due to the threat of unionisation of its workforce, so Starbucks wants to focus on the investments in its employees and stores.

Starbucks stock have been under pressure for many months. The stock made an attempt to settle above the $125 level back in July 2021 but lost momentum and declined towards the $80 level in mid-March. Currently, it is trying to settle below the $86 level.

What’s Next For Starbucks Stock?

Analysts expect that Starbucks will report earnings of $3.33 per share in the current year and $3.9 per share in the next year, so the stock is trading at 22 forward P/E. It should be noted that analyst estimates have been moving lower in recent months, which served as a material bearish catalyst for Starbucks stock.

At this point, it looks that the market believes that Starbucks’ costs will continue to grow in the near term. Meanwhile, the suspension of the buyback program removes some support that was previously provided to the stock.

In the longer term, the decision to suspend the buyback program may serve as a positive catalyst in case the money that would have been used to buy shares would be invested to re-energize growth. For Starbucks stock to have a chance to gain sustainable upside momentum, earnings estimates must start to move higher. In case earnings estimates continue to trend lower in the upcoming weeks, the stock could test recent lows near the $80 level.

For a look at all of today’s economic events, check out our economic calendar.

Best Oversold Stocks to Buy Now for April 2022

Stock Markets and Big Money in the Last 6 Months

But that doesn’t change the fact that there’s been a lot more selling than buying over the past six months when it comes to Big Money investors like institutions.

To see what I mean, look at the chart below from my research firm, MAPsignals. We track Big Money activity. The blue bars are Big Money buy signals and the red bars are sells. The light at the end of the tunnel is the absence of red at the far right, but the broader view shows a lot more selling than buying:

It’s been worse for some sectors than others. For instance, the discretionary sector has been walloped over the last year:

When red bars run rampant, good names can get crushed. They can become what I call “oversold.” When this happens, even great stocks can get caught in the selling rush – and that can mean opportunity.

Oversold Stock Investment Opportunities for April 2022

There are some great stocks being sold right now, many in the discretionary sector. They’re fundamentally sound companies with good histories, which means discounts for long-term investors. Here are five stocks seeing lots of red that appear to be near-term oversold: TTD, NKE, SBUX, UPST & TMO.

Trade Desk Stock Analysis

Up first is Trade Desk, Inc. (TTD), a cloud-based advertising platform.

Even though great companies’ stocks can be volatile, like TTD over the past year, they’re worthy of attention, especially on pullbacks. Check out Trade Desk:

  • 1-month performance (-14.1%)
  • Recent Big Money sell signals

To show you what our Big Money signals look like on a stock, have a look at all the buys (green bars) and sells (red bars) in TTD over the past year:

Looking more broadly, Trade Desk has been a high-quality stock for years. The blue bars in the chart below show when TTD was a high-ranking stock likely being bought by a Big Money player, according to MAPsignals. When you see a lot of blue, it can be very bullish:

Source: www.MAPsignals.com

Those blue signals indicate Big Money buying and solid fundamentals. As you can see, Trade Desk’s sales and earnings numbers have been strong, making it worthy of attention:

  • 3-year sales growth rate (+36.0%)
  • 3-year EPS growth rate (+29.2%)

Nike Stock Analysis

Next up is Nike, Inc. (NKE), the athletic wear giant.

Check out these technicals for NKE:

  • Year-to-date performance (-17.0%)
  • Recent Big Money sell signals

It’s been getting sold a lot recently:

But now let’s look long-term. These are the top buy signals for Nike since 2010. The Big Money has been on it for a while:

Source: www.MAPsignals.com

Let’s look under the hood. As you can see, Nike has had rock-solid, double-digit growth in earnings and sales:

  • 3-year EPS growth rate (+67.2%)
  • 1-year sales growth rate (+18.9%)

Starbucks Corporation Stock Analysis

Another growth name is Starbucks Corporation (SBUX), the well-known coffee brand.

Strong candidates for growth usually have Big Money buying the shares. Starbucks has historically had that. But recently, it’s full of red, which could be an opportunity:

  • Year-to-date performance (-22.0%)
  • Historical Big Money signals

Below are the blue Big Money signals SBUX has made since 2010. That’s the JUICE!

Source: www.MAPsignals.com

Now let’s dig deeper. Earnings and sales growth for Starbucks have both been impressive. I expect more of the same in the coming years. It’s also profitable and has little debt.

  • 3-year EPS growth rate (+89.2%)
  • 1-year sales growth rate (+23.6%)
  • Profit margin (+14.5%)
  • Debt/equity ratio (0.0%)

Upstart Holdings Stock Analysis

Number four on the list is Upstart Holdings, Inc. (UPST ), which is a cloud-based artificial intelligence lending platform.

Here are the technicals important to me:

  • 1-month performance (-23.9%)
  • Historical Big Money signals

Since last fall it’s been on a steep downward slide, with more Big Money selling than buying:

But Upstart is a Big Money darling. Below are the Big Money Top 20 buy signals for UPST since it began trading:

Source: www.MAPsignals.com

Let’s look under the hood. Despite the price slide, Upstart earnings have rocketed, and they’re expected to keep growing:

  • 3-year EPS growth rate (+1,060.7%)
  • 2-year vs. 1-year EPS growth rate estimate (+38.9%)

Thermo Fisher Scientific Stock Analysis

Our last growth candidate is Thermo Fisher Scientific Inc. (TMO), a longtime player in the medical devices and life sciences arenas. Like most health care stocks, it’s been getting beaten up this year:

Check out these technicals:

  • 1-month performance (-11.0%)
  • Historical Big Money signals

TMO is a high-quality stock since it’s made the MAPsignals Top 20 report. As you can see below, it’s been a Big Money favorite for years. Right now, it’s on a pullback and could be an opportunity.

Source: www.MAPsignals.com

Now let’s look below the surface a bit. Earnings have been growing, it has a relatively inexpensive valuation (especially for a Big Money favorite), and there’s been solid sales growth too:

  • 3-year EPS growth rate (+40.8%)
  • Forward price-to-earnings ratio (25.5x)
  • 3-year sales growth rate (+17.6%)

Bottom Line and Explanatory Video

TTD, NKE, SBUX, UPST & TMO represent the top oversold stocks for April 2022. They’ve been sold a lot lately…perhaps too much. Strong, fundamentally-sound stocks seeing near-term sell signals are worthy of extra attention because of their long-term potential.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in NKE, SBUX & UPST in personal and managed accounts.

Contact:

https://mapsignals.com/contact/

Coinbase and Cardano Call on Hackers to Plug Security Gaps

Cybercrime surged in 2021 and hackers and other cyber criminals are looking for another bumper year this year. As cyber criminals become more sophisticated, crypto platforms need to be even smarter to protect investors and users from hacks and other types of criminal activity.

Ransomware, Hacks, and other Illicit Activity Hurt Digital Asset Value

Late last week, we reported on prelim ransomware numbers for 2021 and likely finalized numbers. Based on prelim figures and upward revisions to 2020 numbers, ransomware alone could hit more than $1bn in 2021. There was also news of North Korea funding its missile program with stolen crypto.

With the likes of North Korea actively hitting the crypto market for source of funds, government scrutiny has also increased. In late January, the White House announced an imminent crypto executive order to task agencies with crypto oversight in the interest of national security.

As governments and regulators look to take a more active role in the crypto market, crypto platforms will also need to step up or face the wrath of regulators.

The issue doesn’t just lie with crypto exchanges, however, with the NFT marketplace and the Metaverse also considered as a medium for illegal activity. China, India, the UK, and a number of other governments have highlighted the need to clamp down on illicit activity.

Cardano and Coinbase Look Outside to Tighten Security

This week, the Cardano Foundation (ADA) announced a 6-week promotion running from 14th February to 25th March. The Foundation doubled its bounty amounts for the period. Hackers can earn up to $20,000 for identifying critical Cardano Node security vulnerabilities. The security community can also earn up to $15,000 for identifying critical Cardano-Wallet security vulnerabilities.

Coinbase was also in the news this week, with a lone hacker reportedly assisting Coinbase with a security flaw. A hacker going by the name Tree of Alpha tweeted over the weekend of a “potentially market-nuking” security flaw. Tree of Alpha tweeted a submission of a hacker1 report but also the pressing need for direct contact with the Coinbase team.

Hackerone is a platform started by hackers and security experts with the aim of making the internet a safer place. The platform partners with hackers to uncover security issues for customers before they are exploited by criminals. Users include Starbucks, Nintendo, PayPal, Spotify, Toyota, the European Commission, among others.

The collaboration and effectiveness of Hackerone was evident in the Coinbase fix. Brian Armstrong himself replied directly to Tree of Alpha to give thanks.

Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

Wall Street Week Ahead Earnings: Alphabet, PayPal, Exxon Mobil, Meta, Qualcomm and Amazon in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion will hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of January 31

Monday (January 31)

TICKER COMPANY EPS FORECAST
CBT Cabot $1.06
CRUS Cirrus Logic $1.91
FN Fabrinet $1.28
HLIT Harmonic $0.09
NXPI NXP Semiconductors $2.67
PCH PotlatchDeltic $0.48
RYAAY Ryanair Holdings $-0.15
SANM Sanmina $0.91
TT Trane Technologies $1.31
WWD Woodward $0.83

 

Tuesday (February 1)

IN THE SPOTLIGHT: ALPHABET (GOOGLE), PAYPAL, EXXON MOBIL

ALPHABET: The parent of Google and the world’s largest search engine that dominates internet search activity globally is expected to report its fourth-quarter earnings of $26.71 per share, which represents year-over-year growth of about 20% from $22.3 per share seen in the same period a year ago.

The Mountain View, California-based internet giant would post revenue growth of nearly 27% to $72.133 billion from $56.9 billion a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Key Alphabet (GOOG) ’22 Ad Buyer Survey conclusions: i) Google Search remains highest ROI platform; ii) YouTube expected to gain ad share ’21-’23; & iii) GOOG Search & YouTube are the top platforms for ad buyers reallocating budget due to iOS changes. We est. GOOG’s share of WW Digital adv. (x-China) goes from 41% to 37% ’22-’27. We extended model to ’27, PT to$3,500 vs. prior $3,360, reiterate Outperform,” noted John Blackledge, equity analyst at Cowen.

PAYPAL: The digital payments company is expected to report its fourth-quarter earnings of $0.86 per share, which represents year-over-year growth of about 15% from $0.75 per share seen in the same period a year ago. The San Jose, California-based company would post revenue growth of over 12% to around $6.9 billion.

EXXON MOBIL: The oil company will see its earnings rise multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago. On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

TICKER COMPANY EPS FORECAST
AMD Advanced Micro Devices $0.69
AMCR Amcor $0.18
ASH Ashland Global Holdings $0.93
CTLT Catalent $0.79
CB Chubb $3.34
EA Electronic Arts $2.81
XOM Exxon Mobil $1.73
GM General Motors $0.84
NMR Nomura Holdings $0.2
SBUX Starbucks $0.8
UBS UBS Group $0.24
UPS United Parcel Service $3.05

 

Wednesday (February 2)

IN THE SPOTLIGHT: META PLATFORMS (FACEBOOK), QUALCOMM

META PLATFORMS (FACEBOOK): The world’s largest online social network is expected to report its fourth-quarter earnings of $3.78 per share, which represents a year-over-year decline of over 2% from $3.88 per share seen in the same period a year ago.

The Menlo Park, California-based social media conglomerate would post revenue growth of over 30% to around $33.04 billion. The social media giant has consistently beaten consensus earnings estimates in most of the quarters in the last two years, at least.

QUALCOMM: The world’s biggest mobile phone chipmaker is expected to report its fiscal first-quarter earnings of $2.77 per share, which represents a year-over-year decline of over 40% from $1.97 per share seen in the same period a year ago.

The chip manufacturer would post revenue growth of nearly 27% to $10.45 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

Qualcomm forecasts GAAP revenue in the first quarter of fiscal 2022 to be between $10 billion and $10.8 billion. On a non-GAAP basis, earnings will likely range from $2.90 to $3.10 per share, while GAAP earnings will likely range from $2.53 to $2.73 per share, according to ZACKS Research.

“After underperforming the SOXX for most of 2021 until a sharp rally late in the year, we see a strong setup for a now Apple-overhang-free Qualcomm in 2022 as investors begin to appreciate the diverse revenue drivers beyond Wireless. Expect solid print and guide, with focus on execution and growth in the connected intelligent edge and update our estimates accordingly,” noted Matthew Ramsay, equity analyst at Cowen.

“We reiterate our price target of $210 based on 17.5x our F2023 EPS estimate of $12.0 and our Outperform rating.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

TICKER COMPANY EPS FORECAST
EAT Brinker International $0.5
CHRW C.H. Robinson Worldwide $1.85
CPRI Capri Holdings $1.67
CTSH Cognizant Technology Solutions $1.03
RACE Ferrari $1.08
FB Meta Platforms $3.78
MET MetLife $1.63
TMUS T-Mobile $0.2

 

Thursday (February 3)

IN THE SPOTLIGHT: AMAZON

The e-commerce leader for physical and digital merchandise, Amazon, is expected to report its fourth-quarter earnings of $3.9 per share, which represents a year-over-year decline of over 70% from $14.09 per share seen in the same period a year ago.

However, the Seattle, Washington-based multinational technology giant would post revenue growth of about 10% to around $138 billion. The company has beaten earnings per share (EPS) estimates most of the time in the two years.

“We are reiterating our BUY rating and our price target to $3,900. Our price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast of 22.0% versus 13.7% in 2020,” noted Tom Forte, MD, Senior Research Analyst at D.A. DAVIDSON.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

TICKER COMPANY EPS FORECAST
ABB ABB $0.38
ALL Allstate $2.72
COP ConocoPhillips $2.23
LLY Eli Lilly $2.37
HON Honeywell International $2.09
PRU Prudential Financial $2.44
SU Suncor Energy $0.95
SYNA Synaptics $2.63

 

Friday (February 4)

TICKER COMPANY EPS FORECAST
APD Air Products & Chemicals $2.51
AON Aon $3.33
BMY Bristol Myers Squibb $1.85
CBOE Cboe Global Markets $1.41
ETN Eaton $1.73

 

Starbucks Investors Dismiss Unionization Vote

Starbucks Corp. (SBUX) held close to weekly highs on Friday, despite reports that workers in Buffalo, NY have voted to unionize at least one café. Four other stores are trying to set a vote (three in Buffalo and one in Arizona), with successful efforts likely to stoke similar drives in other locales. Even so, market players may be discounting the Buffalo vote due to the city’s progressive reputation, where a Socialist candidate was beaten in November’s mayoral race.

Union Tempest in a Teapot?

Hourly wage issues are plaguing all sorts of retail and industrial operations as a result of rising inflation triggered by the two-year pandemic, as characterized by well-publicized strikes at Deere and Co. (DE) and Kellogg Co. (K). Whether or not this turns into a nationwide phenomenon remains to be seen, with well-entrenched management and a generally union-adverse American work force that’s repulsed by the Socialist stigma of collective bargaining.

MKM Partners analyst Brett Levy dismissed the unionization effort last week, upgrading Starbucks to ‘Buy’ with a $130 target. As he notes “Despite an operating model facing near-term pressures related to internal decisions, macro-related factors, and the understanding that a straight-line recovery is unlikely, we are choosing to look past these short-term hurdles. We have long been supportive of SBUX’s brand strength/scale; development opportunities; and the balancing of investments in its brand, people, technology and returns to the investment community”.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 15 ‘Buy’, 7 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $105 to a Street-high $142 while the stock will open Monday’s session about $9 below the average $125 target. This modest placement bodes well for higher prices but that might have to wait until investors can gauge the impact of the Omicron wave, if any, on same store sales around the world.

Starbucks topped out near 100 in July 2019 and sold off to a 20-month low during March 2020’s pandemic decline. The subsequent uptick reached the prior high in November, yielding an immediate breakout that added points at a healthy pace into July 2021’s all-time high at 126.32. The subsequent pullback has carved an inverse head and shoulders pattern across the 50-day moving average, with a breakout setting off buying signals that favor a test of the rally high.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held Kellogg in a family account at the time of publication. 

 

Why Starbucks Stock Is Down By 7% Today

Starbucks Stock Falls After Quarterly Report Fails To Meet Traders’ Expectations

Shares of Starbucks gained downside momentum and moved towards the $105 level after the company reported its quarterly results. Starbucks reported revenue of $8.1 billion and adjusted earnings of $1.00 per share, missing analyst estimates on revenue and meeting them on earnings.

The company stated that global comparable store sales increased by 17%, mostly driven by an increase in comparable transactions. It should be noted that China comparable store sales decreased by 7% as both the average ticket and the number of transactions declined.

In fiscal 2022, Starbucks will increase wages for its retail workers. Labor shortage is reported across various industries, so this measure should improve the company’s ability to retain talent.

Starbucks has also announced that it would return $20 billion to shareholders over the next three years, using share repurchases and dividends.

What’s Next For Starbucks Stock?

Earnings estimates for Starbucks have been flat in recent months. Analysts expect that the company will report earnings of $3.73 per share in the current fiscal year and $4.2 per share in the next fiscal year, so the stock is trading at 25 forward P/E for fiscal 2023.

The company’s earnings guidance implies 10% EPS growth from the base of $3.10 per share in fiscal 2021, so Starbucks expects to report earnings of about $3.40 per share in fiscal 2022.

Analyst estimates are higher than the company’s guidance, and the market does not look satisfied with the company’s earnings target. The slowdown in China and wage inflation served as additional negative catalysts for Starbucks stock.

The company’s shares have already declined by more than 15% from the peak that was reached back in July, so the size of the pullback may attract value-oriented players. However, it remains to be seen whether the market believes that current valuation is justified as Starbucks’ growth targets look modest.

For a look at all of today’s economic events, check out our economic calendar.

Marketmind: The ECB’s Inflation Conundrum

A look at the day ahead from Tommy Wilkes.

Will it or won’t it become the latest central bank to warn that price pressures are more severe — and less transitory — than they appeared a few months ago?

The difficulty for the ECB is that it wants to maintain its ultra-dovish stance to boost the region’s economy, but at the same time, it must face up to inflation expectations that are running at seven-year highs above 2%.

The prospect of slowing economic growth and central bank policy tightening is flattening bond yield curves worldwide — taking longer-dated borrowing costs lower. Europe is no exception, with German 10-year yields on Wednesday seeing their biggest daily drop in eight months.

A busy day for central bank activity elsewhere too. The Bank of Japan delivered another dovish statement, projecting inflation to stay below target for at least two more years. It just reinforces the view it will lag others in dialling back crisis-mode policies.

The Reserve Bank of Australia, meanwhile, skipped a chance to buy a government bond at the heart of its stimulus programme, sending yields soaring above target and raising wagers it will become yet another bank opting for an early rate hike.

Supply chain disruptions continue to dominate the earnings season, with Volkswagen the latest carmaker to report lower-than-expected operating profit, partly because of the chip shortage.

Samsung reported its highest quarterly profit in three years but expect component shortages to affect chip demand.

Stock markets have pulled back, with Germany’s DAX opening 0.2% lower and Wall Street futures only marginally higher.

(For graphic on Euro zone inflation expectations – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjolwdgpr/euro%20zone%20inflation.PNG)

Key developments that should provide more direction to markets on Thursday:

-ECB meeting

-German unemployment/prelim CPI Oct (4.4% Y/Y/ Reuters poll)

-Euro zone consumer inflation expectations Oct

-Norway Central Bank Governor Øystein Olsen speaks

-Emerging markets: Egypt central bank meeting

-U.S. flash GDP Q3 (2.8% Reuters poll)

-U.S. core PCE flash Q3 (4.5% Reuters poll)

-U.S. Initial jobless claims

-U.S. 7-yr note auction

-U.S. earnings: Allegheny, AllianceBernstein, Caterpillar, Comcast, Hershey, Mastercard, Merck, Newmont Mining, Moody’s, Royal Caribbean Cruises, T-Rowe Price, Yum Brands, Amazon, Apple, Gilead Sciences, Starbucks, United States Steel.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tommy Wilkes, editing by Sujata Rao)

Starbucks to Exit South Korea Venture Valued at Over $2 Billion

By Shubham Kalia and Joyce Lee

E-Mart, one of the largest retailers in South Korea that currently owns half the JV, will buy an additional 17.5% stake for $411 million, it said in a filing on Tuesday. It will operate the Starbucks stores. GIC will own the remaining 32.5%.

This suggests a $2.35 billion valuation for the entire business, and that GIC will pay more than $700 million for its stake, according to Reuters calculations.

GIC declined to comment on the deal value.

Starbucks said the deal is expected to be completed over the next 90 days.

“South Korea continues to be an important market for Starbucks,” Michael Conway, Starbucks’ group president for international and channel development said in a statement on Tuesday.

“Part of our success in South Korea – and in many of our international markets – is due to our expertise and judgment in knowing when to rely on local partners to continue to build the business.”

With more than 1,500 stores across 78 cities, Starbucks Coffee Korea’s operating profit surged nearly three-quarters to 45.4 billion won ($39.5 million) in January-March. Last year, amid pandemic curbs, earnings fell 6% from 2019 numbers.

Starbucks Korea, however, declined to comment on why the U.S. coffee giant agreed to divest its stake in the East Asian country.

A Hong Kong-based spokesperson for Starbucks could not be immediately reached.

“Starbucks and E-Mart have had many conversations on how we can continue to grow the Starbucks brand in the market, which led to this decision,” said T.J. Hyung, Executive Vice-President of E-Mart, which operates a nationwide network of over 160 hypermarkets, discount stores, and other specialty stores.

E-Mart, and its parent Shinsegae Group, have leveraged a pandemic-led disruption in the Asian e-commerce industry to buy up some businesses.

A Shinsegae spokesperson said Starbucks Coffee Korea will continue to be in a licensing agreement with Starbucks, as it has been when it was a joint venture between Starbucks and Shinsegae Group.

E-Mart said last month it would buy most of EBay’s South Korean business for $3 billion, while another affiliate of Shinsegae, SSG.COM Corp, bought an online shopping mall for 265 billion won in April.

($1 = 1,150.4500 won)

(Reporting by Shubham Kalia in Bengaluru and Joyce Lee in Seoul; Additional reporting by Anshuman Daga in Singapore; Editing by Ramakrishnan M., Sayantani Ghosh, and Sherry Jacob-Phillips)

Nestle and Starbucks Extend Partnership to Ready-to-Drink Coffee

Nestle and Starbucks signed a global licensing deal in 2018 that granted Nestle the perpetual rights to market Starbucks packaged coffee and food service products globally. The initial agreement excluded goods sold in Starbucks coffee shops and ready-to-drink products.

“With our expansion plans into ready-to-drink coffee, Nestle will continue to build on its global leadership in coffee and will benefit from new growth opportunities in a segment that is developing rapidly and attracting new and younger consumers,” David Rennie, head of Nestle coffee brands, said in the statement late on Monday.

Under the extended partnership, Nestle and Starbucks will roll out products like Starbucks Frappuccino and Doubleshot to select markets in Southeast Asia, Oceania and Latin America from next year and also develop new products, the two partners said.

Nestle’s sales of Starbucks products reached 2.7 billion Swiss francs ($2.95 billion) last year.

($1 = 0.9163 Swiss francs)

(Reporting by Silke Koltrowitz)

Best Dividend Stocks July 2021

The hallmark way I go about finding the best dividend stocks…the outliers, is by looking for quiet Big Money trading activity. Oftentimes, that can be institutional activity. I’ll go over why following the Big Money is so important in a bit. But, the 5 stocks I see as long-term dividend growth candidates are DPZ, LRCX, MSFT, SBUX, & EXR.

Over decades, I’ve learned that the true tell on great stocks is that big money consistently finds its way into the best companies out there… especially dividend paying stocks. Some of the biggest returns ever have come from holding stocks for many years and reinvesting dividends.

I want the odds on my side when looking for the highest quality dividend stocks…and I own many of them.

So, let’s get into it.

Up first is Domino’s, Inc. (DPZ), which is a large pizza chain. They’ve been raising their dividend for years.

Let’s first start with the technical picture.

When deciding on a strong candidate for long-term dividend growth, I look for stocks leading in price:

  • 1 month performance (+8.82%)
  • Historical Big Money buy signals

Below are the Big Money signals Domino’s has made since 2015. Blue bars are showing that DPZ was seeing big buy activity according to MAPsignals. Typically, the more Big Money signals, the stronger the stock:

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, DPZ has a strong dividend history:

  • 3-year dividend growth rate (+19.2%)
  • Current dividend per share = .94
  • Forward yield = .82%
  • 3-year earnings growth rate (+28.28%)

Next up is Lam Research Corp. (LRCX), which is a leading semiconductor company. They’ve also been a dividend grower for years.

When deciding on a strong candidate for long-term dividend growth, it’s a good idea to look for many years of dividend increases.

Now let’s look at recent performance:

  • 1 month performance (-.24%)
  • Historical big money signals

Below are the big money signals that Lam Research has made since 2015. I expect more buy signals in the years to come.

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Lam Research has a nice dividend history. Their earnings growth has been stellar as well:

  • 3-year dividend growth rate (+40.7%)
  • Current dividend per share = 1.30
  • Forward yield = .82%
  • 3-year earnings growth rate (+15.48%)

Next, I’m looking at Microsoft Corp. (MSFT), which is a leading software company. They have a solid dividend history.

When deciding on a strong candidate for long-term dividend growth, recent performance in the shares is important:

  • 1 month performance (+7.63%)
  • Recent Big Money signals

Below are the big money signals that Microsoft has made since 2015. It’s clear the stock has been in a nice uptrend:

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you should look under the hood to see if the fundamental picture supports a long-term investment. As you can see, MSFT has a strong dividend history:

  • 3-year dividend growth rate (+9.2%)
  • Current dividend per share = .56
  • Forward yield = .84%
  • 3-year earnings growth rate (+43.33%)

Next, I’m looking at Starbucks Corp. (SBUX), which is a global coffee chain. They operate over 32,000 restaurants globally.

When deciding on a strong candidate for long-term dividend growth, recent muted performance is not a bad thing:

  • 1 month performance (-1.44%)
  • Historical Big Money signals

Below are the Big Money signals that Starbucks has made since 2015.

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, let’s check up on the fundamentals. As you can see, Starbucks has a strong dividend history.

  • 3-year dividend growth rate (+17.9%)
  • Current dividend per share = .45
  • Forward yield = 1.61%
  • 3-year earnings growth rate (-6.23%)

Lastly, I’m looking at Extra Space Storage, Inc. (EXR), which is a leading storage company. They’ve been a leader in the Real Estate sector for years.

When deciding on a strong candidate for long-term dividend growth, I like to look for recent leaders:

  • 1 month performance (+11.22%)
  • Historical Big Money signals

Below are the Big Money signals that EXR has made since 2015.

Chart, histogramDescription automatically generated
Source: MAPsignals, End of day data sourced from Tiingo.com

On top of technicals, when deciding on the best dividend stock, you gotta see if the fundamental picture supports a long-term investment. EXR has been a steady grower:

  • 3-year dividend growth rate (+4.9%)
  • Current dividend per share = 1.00
  • Forward yield = 2.40%
  • 3-year earnings growth rate (-.11%)

The Bottom Line

DPZ, LRCX, MSFT, SBUX, & EXR represent solid dividend choices. Given the strong historical dividend growth and Big Money signals, these stocks could be worth an extra look for a dividend investor.

Disclosure: the author holds long positions in personal accounts in LRCX, MSFT, SBUX, & EXR and long positions in managed accounts in DPZ, LRCX, SBUX, & EXR.

To learn more about the MAPsignals process, click here.

Disclaimer

Starbucks Could Sell Off into Third Quarter

Nasdaq-100 component Starbucks Corp. (SBUX) has struggled to maintain altitude since April and could break down, testing deep support at December’s breakout near 100. Overly high expectations following 2020’s 23% return is partially to blame but more recent red flags have dampened buying interest as well. The rapidly changing restaurant environment adds a third headwind, with mixed opinions about the strength of the post-pandemic recovery.

Mixed Second Quarter Results

The coffee maker posted mixed Q2 2021 earnings in April, just one week after topping out at an all-time high near 120. It beat profit forecasts with a healthy $0.62 per-share but came up short on revenues, booking 11.2% year-over-year growth to $6.67 billion. Americas sales were to blame for the shortfall, with comparable sales rising just 9% compared to a 35% increase in international comparative sales, led by a 91% surge in China.

Fortunately for shareholders, the report featured two bright spots that limited selling pressure. First, average customer ticket rose in all segments, lifting 19% in Americas and 26% internationally. Second, the company raised fiscal year 2021 guidance to $2.90 – $3.00 per-share while revenues are now expected to reach $29 billion. However, Americas sales will need to grow 17% to 22% to achieve those goals and that could be tough, given Q2 metrics.

Wall Street and Technical Outlook

Wall Street consensus has improved since April despite the earnings miss and now stands at an ‘Overweight’ rating based upon 18 ‘Buy’, 1 ‘Overweight’, and 12 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets range from a low of $104 to a Street-high $142 while the stock opened Tuesday’s session $13 below the median $125 target.

A strong uptrend topped out at 100 in July 2019, yielding a pullback that accelerated during the pandemic decline. A steady uptick recovered those points into November, ahead of breakout that lost steam in April 2021. The subsequent decline broke rising channel and 50-day moving average support in May while last week’s test at that barrier failed, raising odds for lower lows in coming weeks. The breakout level marks the line-in-the-sand for bulls in this configuration.

For a look at all this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Starbucks Shares Fall After it Misses Revenue Estimates, But Analysts Optimistic on Outlook

Starbucks shares fell about 2% in post-trading hours on Tuesday after the world’s leading specialty coffee retailer reported lower-than-expected revenue in the fiscal second quarter of 2021, although the coffee chain raised its full-year guidance.

The Seattle-based retailer said its consolidated net revenues rose 11% from the prior year to $6.7 billion, missing Wall Street’s consensus estimates of $6.82 billion.

Following this, Starbucks shares slumped about 2% to $144.16 after trading hours on Tuesday. The stock rose over 8% so far this year.

However, the world’s leading restaurant chains reported non-GAAP earnings per share of $0.62, up from $0.32 in the prior year. That was also higher than the analysts’ expectations of $0.52 per share.

Starbucks raised its forecasts for revenue and profit for the fiscal year 2021 to $28.5 billion-$29.3 billion and non-GAAP EPS in the range of $2.90-$3.00, up from the previous projection of $28.0 billion-$29.0 billion and $2.70-$2.90, respectively.

Analyst Comments

“Bottom line beat driven by exceptional margin performance, while top-line ~ expectations, but underscoring full recovery vs pre-COVID-19. Guidance raised as hoped, but we still see room for upside. Full valuation/high expectations likely keep NT stock reaction in check. Raise price target to $120, maintain Equal-weight,” noted John Glass, equity analyst at Morgan Stanley.

“FY21 guidance was raised for a few key items based on better-operating results, including revenue of $28.5-29.3B vs prior guidance of $28-29B; adj. operating margin of 16.5-17.5% (from 16-17%) which is still expected to lag the sales recovery by two quarters and should reach the longer-term 18-19% target by yearend (our estimate is above this); adj. EPS of $2.90-3.00 from $2.70-2.90 previously (both with 10c from the 53rd week and comparing to our prior estimate of $2.84 and consensus $2.85); and a more favorable tax rate in the low to mid-20%s from mid-20%s prior. Other items including comps, new store openings, capex and interest expense for the year were reiterated.”

Starbucks Stock Price Forecast

Twenty analysts who offered stock ratings for Starbucks in the last three months forecast the average price in 12 months of $121.76 with a high forecast of $137.00 and a low forecast of $104.00.

The average price target represents a 4.83% increase from the last price of $116.15. Of those 20 analysts, 13 rated “Buy”, seven rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the base target price of $120 from $110 with a high of $150 under a bull scenario and $79 under the worst-case scenario. The firm gave an “Equal-weight” rating on the coffee retailer’s stock.

Several other analysts have also updated their stock outlook. CFRA raised the stock price forecast to $125 from $115. Jefferies lifted the target price to $135 from $118. Stifel upped the price objective to $124 from $115.

Moreover, UBS increased the stock price forecast to $118 from $109. Stephens raised the target price to $115 from $100. Oppenheimer lifted the price objective to $135 from $122.

“Raise PT, reiterate Buy. Recovery ongoing in the U.S. and China predicated on a powerful and trusted brand, and we expect the LT framework to prove realistic and drive best-in-class TSR. PT to $135 (from $118) as we shift our multiple to 21.5x our newly introduced’C23E EBITDA of $7.9B, in line with global large-cap growth,” noted Andy Barish, equity analyst at Jefferies.

Check out FX Empire’s earnings calendar

Starbucks Breaks Out to New High

Starbucks Corp. (SBUX) broke out to an all-time high on Tuesday and added to gains on Wednesday morning in reaction to two Wall Street upgrades. BTIG Research got the ball rolling on Tuesday, upgrading the coffee king to ‘Buy’ with a $130 price target. Telsey Advisory Group added to good vibes this morning, raising the firm’s target from $108 to $120. Both analysts noted faster-than-expected reopenings and overly conservative guidance in the January earnings release.

Hedge Funds Raise Stakes

The stock sold off more than 6% after missing Q1 2021 revenue estimates and lowering Q2 2021 guidance, with the second wave taking a big bite out of fourth quarter sales. The decline bottomed out quickly, yielding a steady recovery wave that completed a breakout this week. Notably, hedge funds used the pullback as a buying opportunity, with Raymond Dalio’s Bridgewater Associates and Stanley Druckenmiller’s Duquesne significantly raising their stakes.

BTIG Research analyst Peter Saleh stoked buying interest on Tuesday, declaring “we believe the faster-than-anticipated pace of restaurant reopening, coupled with massive federal stimulus, should lead to upward earnings revisions. In the near-term, we expect 2QF21 EPS to top consensus expectations as the company laps the initial impact from the pandemic in China (February) and U.S. (March) and we view guidance as overly conservative”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 17 ‘Buy’, 2 ‘Overweight’, and 14 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $94 to a Street-high $130 while the stock is set to open Wednesday’s U.S. session less than $4 below the median $115 target. This modest placement could support short-term gains into the low $120s.

Starbucks posted strong 2019 returns, lifting to 100 in August. The subsequent pullback accelerated in the first quarter of 2020, dropping the stock to a 20-month low, ahead of a V-shaped recovery that mounted resistance in December. The breakout lost momentum quickly, topping out near 108 a few weeks later. Price action has now cleared that gravitational pull, raising odds for healthy gains into the second half of 2021.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Starbucks Q1 Earnings Remain Lukewarm as Covid Weighs on Sales

Shares in Seattle-based coffee chain Starbucks Corporation (SBUX) remain relatively unchanged in extended-hours trading Tuesday after the company reported a mixed quarterly report.

The beverages giant posted a fiscal first quarter (Q1) profit of 61 cents per share, topping analysts’ consensus of 55 cents a share. Meanwhile, revenues for the period tallied $6.75 billion, falling shy of the $6.93 billion figure Wall Street had expected. The company saw a 5% slump in global same-store sales, although comparable store sales in China jumped 5% as the world’s second-largest economy continued to claw back from the health crisis. On a year-over-year (YoY) basis, the firm saw its top- and bottom-line shrink 5% and 23%, respectively.

Despite the company recording 19% fewer transactions during the quarter, the average ticket spend jumped 17%. Additionally, active customers in the past three months grew by 15%, while mobile orders remained comfortably above pre-pandemic levels.

As of Jan. 27, 2021, Starbucks stock has a market capitalization of $123.25 billion, offers a 1.74% dividend yield, and trades 2% lower since the start of the year. However, in the past three months, the shares have gained around 16%. From a valuation standpoint, the stock trades at 36 times 2021 projected earnings, above its average five-year multiple of 27 times.

Wall Street View

This month, Goldman Sachs initiated coverage of the stock with a ‘Buy’ rating and set a $115 price target – indicating a 9.8% premium from Tuesday’s close of $104.69. The bank’s analyst Jared Garber says the coffee chain sits well-positioned to benefit from the economic re-opening in 2021 as consumers revert to urban centers for work and study. The Starbucks verdict is out among other research analysts. The stock receives 14 ‘Buy’ ratings, 2 ‘Overweight’ ratings, and 18 ‘Hold’ recommendations. Traders shouldn’t expect a significant change in brokerage coverage until the outlook becomes clearer later this year.

Technical Outlook and Trading Tactics

Starbucks’ shares climbed above their previous all-time in early December but have traded mostly sideways since. Providing price continues to hold above the July 2019 high, look for the stock to grind higher as investors factor in demand picking up after the vaccine rollout. Active traders who buy here should protect capital with a stop-loss order placed somewhere below the psychological $100 support level. Consider using the measured move technique to set a profit target. To do this, measure the most recent leg higher in dollars and add that amount to the breakout level. For example, add $22.60 to $100 for a profit target of $122.60.

For a look at today’s earnings schedule, check out our earnings calendar.

Mixed Messages Ahead of Starbucks Report

Starbucks Corp. (SBUX) reports Q1 2021 earnings after Tuesday’s closing bell, with analysts expecting a profit of $0.55 per-share on $6.91 billion in revenue. If met, earnings-per-share (EPS) will mark a 30% profit decline compared to the same quarter in 2020.  The stock sold off in October after the company guided Q1 EPS below consensus but it recovered quickly and has now broken out to an all-time high in triple digits.

Looking for a Q2 Recovery

The coffee king expects U.S. business to fully recover by the end of the March (Q2) quarter. The projection could prove optimistic, given the ongoing second pandemic wave and painfully slow vaccine rollout. In addition, the company is struggling to get through the winter months, with fiscal Q1 revenue projected to fall 5% to 6% overall and 7% to 10% in December, driven by increased restrictions and tougher comparisons during the 2020 holiday season.

Credit Suisse analyst Lauren Silberman posted upbeat comments ahead of the report, noting “We continue to like SBUX on both near-term & long-term fundamentals. Near-term, SBUX should benefit from reopening & increased commuter traffic, a reduction in industry supply, and easy comparisons. Long-term, we remain positive SBUX can return to outperformance, noting strong resilience amidst a challenging breakfast backdrop, with beverage innovation and a powerful digital ecosystem to drive the most meaningful contribution”.

Wall Street and Technical Outlook

Wall Street consensus reflects skepticism about the 2021 outlook, with a ‘Moderate Buy’ rating based upon 14 ‘Buy’, 18 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $94 to a Street-high $122 while the stock closed Friday’s U.S. session $8 below the median $111 target. This humble placement reflects ongoing concerns about the restaurant sector, with investors keeping their power dry while the world awaits vaccine distribution.

Starbucks’ stock completed a round trip into resistance at the 2019 high near 100 in November and broke out in early December, posting an all-time high at 107.75 on the first trading day of 2021. It’s carved a rectangular consolidation since that time and is now trading just three points above the breakout level. The company has done a good job setting expectations ahead of the report, but odds are now equally weighted between a rally continuation and failed breakout.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

ESG Flows Drive Clean Energy to Fresh Highs

The ESG theme has taken the capital markets by storm in 2020. Fund flows into this space have been relentless, helping to drive the clean energy sector to fresh highs. In the first half of 2020, 23-new exchange-traded funds were launched under the ESG umbrella. By the end of the Q3, ESG index funds hit $250 billion in value. The ESG umbrella focuses on many different areas and has flourished during the pandemic. With a vaccine on the horizon, the question for investors is whether this sector will remain sustainable.

What is ESG and ESG Investing

The term ESG stands for:

  • Environmental
  • Social
  • Governance

The term brings to mind concepts like climate change, diversity and inclusion, and resource scarcity. While these are forms of ESG, it also covers social practices, including labor and talent management and data security and product safety. It includes employee experience, executive pay, and ethics. There is a wide divide amongst stakeholders on what the term means and how to communicate and manage the concept.

ESG investing appears to be a derivative of socially responsible investing (SRI), which has been in existence for decades. While profits have always been considered the “mothers milk” of stocks, modern investors have realized that shortchanging stakeholders is a high price for society to pay. A company’s stakeholders include its employees, customers, suppliers, as well as the environment, which play a crucial role in the functioning of the corporation.

There is a fine line between ESG investing and SRI. ESG investors actively look for companies that show robust environmental, social, or governance attributes. SRI focuses on excluding industries that have failed to demonstrate compliance in socially responsible areas. ESG provides broader flexibility into specific companies’ practices and the different management attributes that make up a corporate initiative.

Inflows Into ESG Have Been Impressive

Inflows to ESG have been robust. ESG ETFs surged to $22 billion in the first half of 2020, which was more than 3X the 2019 total, according to Bloomberg. One of the issues that regulators face is that there is no clear definition of what constitutes ESG.

The Concept is Here to Stay

Some corporate actions show me that ESG is here to stay. Stakeholders at public companies are getting assurances from management that their contributions will remain an essential aspect of management’s focus. In 2020, Starbucks Corp. announced that the company would mandate antibias training for executives and tie their compensation to increasing minority representation in its workforce. Their diversity and inclusion mandate’s target is to have 30% of corporate employees be minorities by 2025. While profits at any level are key, it’s hard to imagine that an executive will allow their bonus to be eroded by failing to meet a corporate ESG mandate.

The Best Asset Now Process

I have mentioned this before and I have not wavered. I like to use a BAN strategy (Best Asset Now) to find leading sectors. Two ETFs have largely outperformed the rest that conforms to the ESG concept. These ETFs represent sectors that have shown leadership and are currently two of the top-5 best performing ETFs in 2020. These ETFs have generated bullish chart patterns that point to much higher prices following their recent breakouts.

There is a reason to be bullish. President-elect Joe Biden named former Secretary of State John Kerry to lead his administration’s climate change efforts. Kerry will be the “climate czar” and will be in charge of coordinating programs that are expected to stretch across multiple agencies. This could include executive orders issued by the new President-Elect to provide avenues beyond Congress to advance climate priorities. This is positive news for clean energy ETFs. If you are a stock trader, these are the BAN ETFs to look at which will outperform.

(*source – etfdb.com)

TAN Hits Fresh Highs

The Invesco Exchange-Traded Fund Solar ETF accelerated to multi-year highs in November and is poised to test resistance near the 2011 highs at $91.70. This would add another 11% to its already robust 162% return in 2020. While prices could temporarily consolidate near this $92, a close above this level would lead to a test of the 2010 highs at $115. A close above $115 could lead to a test of the all-time highs near $307. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

*source Tradingview

PBW Invesco Exchange-Traded Wilderhill Clean Energy ETF

Has broken out and is poised to test the 2008 highs near $119.50. Support is seen near the 10-week moving average of $71.70. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory, which points to higher prices.

*source Tradingview

Do you want to stay ahead of these sector trends and learn which sectors are the best opportunities for your trades?   Learn how our BAN Trader Pro education and alerts can help you keep focused on the best trading opportunities in 2021 and beyond while helping you protect and grow your wealth.  Go to www.TheTechnicalTraders.com to learn more about BAN Trader Pro, or let me teach you how to trade this strategy yourself by watching my FREE webinar! Scroll below to register for your seat now and make 2021 your year to PROFIT!!

I wish you all a healthy and profitable New Year!!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com