Is Starbucks Stock a ‘Sell’ after Its Business Update?

Starbucks (NASDAQ:SBUX) stock fell about 1% in today’s trading session at 9:47 AM ET. The stock fell after the company announced projections about how COVID-19 will impact its business. The company expects its adjusted EPS to decline by 47% YoY (year-over-year) to $0.32 in the second quarter of fiscal 2020. Starbucks withdrew its fiscal 2020 financial outlook due to COVID-19 uncertainty. The company also temporarily suspended its share buyback plan. However, the company will continue to pay a quarterly dividend.

On Wednesday, Starbucks stock rose by 4.2% and closed at $71.57 with a market cap of $84.0 billion. The stock price has risen 14.3% in the trailing five-day period, while it has fallen 4.8% in the trailing 12-month period.

Currently, Starbucks stock is trading 28.2% below its 52-week high of $99.72 on July 26, 2019. The stock is also trading 43.1% above its 52-week low of $52.02 on March 18, 2020. On a year-to-date basis, the stock has fallen by 18.6% as of Wednesday.

Analysts’ earnings expectations

Starbucks reported sales of $7.10 billion in the first quarter of fiscal 2020, which ended in December—7.0% growth YoY. The company reported an adjusted EPS of $0.79 in the first quarter of fiscal 2020 compared to $0.68 in the first quarter of fiscal 2019. Analysts expected the company to report sales of $7.11 billion and earnings of $0.76 in the first quarter of fiscal 2020.

Wall Street analysts expect Starbucks to post sales of $5.93 billion in the second quarter of fiscal 2020. The figure would mark a fall of 5.9% YoY compared to $6.3 billion in the second quarter of fiscal 2019. Also, analysts expect the company to post an adjusted EPS of $0.35 in the second quarter of fiscal 2020 compared to $0.60 in the second quarter of fiscal 2019. Currently, analysts expect -4.2% and 13.9% growth in the company’s fiscal 2020 and 2021 revenues, respectively. Analysts also expect an adjusted EPS of $2.05 and $2.99 in fiscal 2020 and 2021, respectively.

Analysts’ recommendations for Starbucks stock

Among the 33 analysts covering Starbucks stock, 12 recommend a “buy”—down from 15 the previous month. Meanwhile, 20 analysts recommend a “hold”—up from 17 the previous month. One analyst recommends a “sell”—unchanged from the previous month. Analysts have an average target price of $77.74 on Starbucks. The target price implies a return of 8.6% based on the closing price of $71.57 on Wednesday. The consensus target price for the stock has fallen from $89.71 in March—a fall of 13.3%.

After Starbucks’s business update yesterday, Citi analyst Wendy Nicholson reduced its target price on the stock from $105 to $82 with a “buy” rating. According to a report from TheFly, “There is no question that COVID-19 has meaningfully pressured Starbucks’ business on a global basis in recent months, but it will bounce back in a big way over time.”

Bank of America Global Research analyst Gregory Francfort downgraded Starbucks stock from “buy” to “neutral.” However, Francfort increased its target price from $68 to $73. According to a report from TheFly, “Francfort expects significant economic pressure on the consumer following as the restaurant industry reopens from the COVID-19 closures. With unemployment up substantially, more discretionary purchases will be scaled back.”

Starbucks’s stock performance

On Wednesday, Starbucks stock was trading 11.7% above its 20-day moving average of $64.06. Meanwhile, the stock is trading 5.4% below its 50-day moving average of $75.63 and 12.4% below its 100-day moving average of $81.69. Starbucks’s 14-day RSI (relative strength index) score is 54. The RSI indicates that the stock isn’t “oversold” or “overbought.”

Starbucks has an upper Bollinger Band level of $73.11. The company’s middle Bollinger Band level is $64.06, while its lower Bollinger Band level is $55.01. On Wednesday, the stock closed near its upper Bollinger Band level, which suggests that it’s overbought. Starbucks’s 14-day MACD is 4.08, which indicates that the stock is on an upward trading trend.

Currently, Starbucks stock is trading at 34.86x its fiscal 2020 estimated EPS of $2.05. The stock is trading at 23.97x its fiscal 2021 estimated EPS of $2.99. Analysts expect Starbucks’s earnings to grow at a CAGR of 10.2% over the next five years. As of Wednesday, Starbucks’s dividend yield was 2.29%.

Read Starbucks Stock Rose despite JPMorgan’s Downgrade and Has Starbucks’s Stock Price Bottomed Out? to learn more.