Starbucks Perks Up on Positive 2021 Outlook

Starbucks Corporation (SBUX) shares gained 3.69% in extended-hours trade Wednesday after the Seattle-based coffee retailer said it sees more favorable conditions returning in 2021.

The company told investors at its biennial investor day that it anticipates a significant rebound next year, along with a continued recovery from the impacts of the coronavirus pandemic. “The recent disruption of the global pandemic has accelerated certain shifts in consumer behavior, and Starbucks has quickly adapted its business for the short- and long-term implications,” management said, per MarketWatch.

CFO Pat Grismer reiterated the company’s fiscal 2021outlook, forecasting an earnings guidance range of between $2.70 and $2.90 per share. Wall Street expects earning per share (EPS) of $2.81. Looking further ahead, the coffee chain expects outsized earnings growth of 20% for fiscal 2022, followed by low double-digit bottom-line growth in both 2023 and 2024 – up from its previous forecast of 10% for the two latter years. The company also updated investors about its long-term growth strategy, such as rolling out artificial intelligence (AI) in its drive-thrus, offering a new range of cold beverages, and tweaking new store formats.

Through Wednesday’s close, Starbucks stock offers a 1.78% dividend yield and trades 16.11% higher on the year. Over the past month, the shares have added 5.18%, outperforming the industry average by around 3%. From a valuation standpoint, the stock trades 32% above its five-year forward earnings multiple of 27 times.

Wall Street View

This month, Oppenheimer’s Brian Bittner raised the investment firm’s price target on the stock to $112 from $101. The analyst believes that margin upside and positive earnings revisions can accompany a full post-pandemic sales recovery.

Sentiment also remains mostly optimistic elsewhere on the Street. The stock receives 14 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 18 ‘Hold’ ratings. No sell-side analysts recommend selling the shares at this time. Price targets range from a high of $113 to a low of $85. The shares currently trade roughly in-line with Wall Street’s 12-month median target of $99.50. Look for further upgrades in the coming weeks as analysts factor in the company’s upbeat guidance.

Technical Outlook and Trading Tactics

Starbuck shares have continued trending high after the 50-day SMA crossed back above the 200-day SMA to generate a “golden cross” buy signal in mid-September. More recently, the stock has consolidated above the July 2019 high, indicating the bullish price action is likely to continue.

Those who wish to play the upside momentum should consider using a trailing stop to bank profits. To do this, traders could remain in their long position until the price closes below a shorter period moving average. For example, exiting on the first close below the 15-day SMA. This allows profits to run until stopped out by the market.

For a look at today’s earnings schedule, check out our earnings calendar.