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.

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