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

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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

 

Starbucks Breaks Out To All-Time High

Starbucks Corp. (SBUX) broke out above 2019 resistance last week and rallied to an all-time high above 100. The company reaffirmed fiscal year 2021 earnings-per-share (EPS) guidance in an ‘Investors Day’ presentation and raised projected growth for years 2022 through 2024. Stronger than previously forecast metrics are expected in both North American and global operations, with China comparable store sales growing 2% to 4% annually, compared to previous 1% to 3% guidance.

Starbucks Raises 2021 – 24 Guidance

The coffee giant beat Q4 2020 earnings in October by a wide margin but fell after issuing Q1 guidance well below estimates. Revenue contracted a sizable 8.1% year-over-year while both North American and global comparable sales fell by wide margins. Higher average ticket size offset losses to some extent but the weak revenue signaled continued fallout from the COVID-19 pandemic and in-house capacity restrictions around the world.

Telsey Advisory Group analyst Bob Derrington raised the price target to $102 after last week’s presentation, noting “Starbucks hosted its biennial Investor Day in a virtual presentation that included senior management members who discussed a number of key operating and financial metrics in support of its Growth at Scale agenda, emphasizing responsible growth that includes doing the right thing for both people and the planet within its longer-term plan”.

Wall Street And Technical Outlook

Wall Street consensus has deteriorated in 2020, with the current ‘Moderate Buy’ rating based upon 9 ‘Buy’ and 11 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets now range from a low of $82 to a Street-high $120 while the stock closed Friday’s U.S. session more than $3 below the median $106 target. Higher targets and fresh upgrades are likely in response to last week’s bullish guidance.

Starbucks topped out just below 100 in July 2019, following a multiyear uptrend, and entered a decline that broke a trading floor in the mid-80s during the first quarter’s pandemic decline. It found support at a 20-month low near 50 in March, giving way to a vertical recovery wave that reached the prior high in mid-November.  The rally into December has completed a cup and handle breakout, forecasting a measured move into the 150 level.

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 Perks Up on Positive 2021 Outlook

Starbucks Corporation (SBUX) shares gained 3.69% in extended-hours trade Wednesday after the Seattle-based coffee retailer said it sees more favorable conditions returning in 2021.

The company told investors at its biennial investor day that it anticipates a significant rebound next year, along with a continued recovery from the impacts of the coronavirus pandemic. “The recent disruption of the global pandemic has accelerated certain shifts in consumer behavior, and Starbucks has quickly adapted its business for the short- and long-term implications,” management said, per MarketWatch.

CFO Pat Grismer reiterated the company’s fiscal 2021outlook, forecasting an earnings guidance range of between $2.70 and $2.90 per share. Wall Street expects earning per share (EPS) of $2.81. Looking further ahead, the coffee chain expects outsized earnings growth of 20% for fiscal 2022, followed by low double-digit bottom-line growth in both 2023 and 2024 – up from its previous forecast of 10% for the two latter years. The company also updated investors about its long-term growth strategy, such as rolling out artificial intelligence (AI) in its drive-thrus, offering a new range of cold beverages, and tweaking new store formats.

Through Wednesday’s close, Starbucks stock offers a 1.78% dividend yield and trades 16.11% higher on the year. Over the past month, the shares have added 5.18%, outperforming the industry average by around 3%. From a valuation standpoint, the stock trades 32% above its five-year forward earnings multiple of 27 times.

Wall Street View

This month, Oppenheimer’s Brian Bittner raised the investment firm’s price target on the stock to $112 from $101. The analyst believes that margin upside and positive earnings revisions can accompany a full post-pandemic sales recovery.

Sentiment also remains mostly optimistic elsewhere on the Street. The stock receives 14 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 18 ‘Hold’ ratings. No sell-side analysts recommend selling the shares at this time. Price targets range from a high of $113 to a low of $85. The shares currently trade roughly in-line with Wall Street’s 12-month median target of $99.50. Look for further upgrades in the coming weeks as analysts factor in the company’s upbeat guidance.

Technical Outlook and Trading Tactics

Starbuck shares have continued trending high after the 50-day SMA crossed back above the 200-day SMA to generate a “golden cross” buy signal in mid-September. More recently, the stock has consolidated above the July 2019 high, indicating the bullish price action is likely to continue.

Those who wish to play the upside momentum should consider using a trailing stop to bank profits. To do this, traders could remain in their long position until the price closes below a shorter period moving average. For example, exiting on the first close below the 15-day SMA. This allows profits to run until stopped out by the market.

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