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.

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