Starbucks Stock Slips on Weak 2020 Outlook



Leading coffee chain Starbucks (SBUX) is down 1% today. Starbucks stock is trading at $96, which is just 3% below its 52-week high. The company has generated significant returns and is up 175% in the last five years.

Starbuck stock is up 52% year-to-date. So why is it down today?

According to a CNBC report, Starbucks expects its EPS growth to be lower than 10% in fiscal 2020. The company previously said that it expected EPS growth of at least 13% in fiscal 2020. It presented the new data today at the Goldman Sachs Retailing Conference.

The CNBC report further states that Starbucks’s earnings in fiscal 2019 (which ends in September) will be affected by one-time tax benefits and stock repurchases. The company will repurchase shares worth $2 billion in fiscal 2019.

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SBUX jumped on stellar earnings

Starbucks stock rose over 8% on July 26 after it reported stellar fiscal 2019 third-quarter results. Its sales rose 9% YoY (year-over-year) to $1.33 billion in the third quarter, and its operating profit rose 15%. According to Starbucks’s management, beverage innovations and an enhanced customer experience drove its revenue growth in the third quarter.

During the company’s earnings call, CEO Kevin Johnson said, “Starbucks delivered strong operating performance in the third quarter, further demonstrating that our ‘Growth at Scale’ agenda is working.”

He added, “Our two targeted long-term growth markets, the U.S. and China, performed extremely well across a number of measures as a result of our focus on enhancing the customer experience, driving new beverage innovation and accelerating the expansion of our digital customer relationships. Given the strong momentum across our business, we are raising our full-year financial outlook.”

Is Starbucks stock undervalued?

Analysts expect Starbucks to post revenue of $26.43 billion, a rise of 6.9% YoY, in fiscal 2019. They expect its sales to reach $28.45 billion in fiscal 2020 and $30.76 billion in fiscal 2021. Analysts expect the company’s EPS to rise 16.5% in fiscal 2019, 10.3% in fiscal 2020, and at an annual rate of 13.1% over the next five years.

In comparison, Starbuck stock is trading at a forward PE of 30.7x, indicating that it’s overvalued at its current price. Analysts have a 12-month average price target of $95.68 on Starbucks stock.


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