Starbucks In Rally Mode After Twin UpgradesThe upscale coffee chain could rally back to the first quarter high in coming weeks.
Starbucks Corp. (SBUX) is approaching the September high in Thursday’s U.S. session, with improving sentiment underpinned by twin analyst upgrades and a 10% quarterly dividend increase. The stock rallied 3.7% following July’s Q3 release, despite reporting a loss of $0.46 per-share and a 38.1% year-over-year revenue decline. The stock has added to upside since that time and could now set its sights on the first quarter peak in the mid-90s.
Starbucks Mid-Quarter Update
The coffee giant provided a mid-quarter update in September, noting that comparative sales for U.S. company-operated stores fell 11% in August, compared to 14% in July and 19% in June. August comparative sales in China were flat, compared to a drop of 10% in July and 8% in June. China has now returned to positive growth over a 2-year reporting period while the United States is lagging behind, with a 5% reduction over the same period.
Cowen analyst Andrew Charles upgraded Starbucks from ‘Market Perform’ to ‘Outperform’ on Wednesday, raising the price target from $77 to $99 while noting “we view early signs of the U.S. recovery as durable, aided by broadening digital access through expanded pay options for loyalty and 23% of U.S. stores adding curbside pick-up. In our view, COVID-19 presents new efficiency opportunities for the Growth at Scale agenda to drive ~15% 2022-23 EPS growth. We view the risk/reward as compelling as our bull/bear cases suggest a 2:1 upside/downside ratio.”
Wall Street And Technical Outlook
Wall Street currently rates Starbucks as a ‘Moderate Buy’, based upon 11 ‘Buy’ and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $78 to a street-high $99 while the stock opened Thursday’s U.S. session just $1 above the median $86 target. This placement suggests that stronger growth metrics may be needed to generate additional upside.
Starbucks posted an all-time high near 100 in August 2019 and completed a double top breakdown in February 2020, establishing strong resistance in the low-80s. The stock remounted that barrier in August but then reversed at a major Fibonacci retracement level and has made little progress since that time. This holding pattern makes sense, given the company’s exposure to COVID-19 and worries that winter will trigger a second pandemic wave.
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