Starbucks In Rally Mode After Twin Upgrades

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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