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.

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