Is Starbucks a buy?
Starbucks is one of the most well-known brands in the world. As the world continues to recover from COVID-19, it begs the question, is Starbucks a buy?
Current Price: $84.30
52/Wk High: $94.13
52/Wk Low: $50.02
Read below for the breakdown!
Starbucks is one of the best-known coffee retailers and roasters in the world, with over 32,180 global stores and locations.
Due to COVID-19 Starbucks has taken a major hit as the rest of the retail market, but the company has developed new sales channels such as delivery, digital ordering, and much more to come back stronger throughout the global pandemic.
Taking a look at Q3, the most recent quarter, Starbucks managed to grow locations, hitting 4,400 locations in China, up 100 stores throughout the third quarter.
Not only that, but the Starbucks up is rapidly growing, with US Starbucks rewards members hitting a total of 3 million members, up 17% since the prior quarter.
Furthermore, according to the most recent earnings call, during Q3, active users among rewards members totaled 9.9 million over 90 days.
When it comes to sales methods, delivery transactions tripled from Q2, representing a huge increase in an important sales channel due to COVID-19.
Digging into the numbers, Starbucks continued to report negative numbers due to the effects of the global pandemic.
Starbucks delivered a Q3 beat, with an EPS of $-0.46 versus the expected EPS consensus of $-0.59. Furthermore, revenue continued to decline in Q3, to $4.2 billion, representing a decline of 38% from the prior year.
When it comes to the sales numbers themselves, international sales declined, down 37% from the year prior.
While the numbers were unfortunately negative, management continued to maintain positivity and believes a return to profitability is likely in Q4.
Starbucks management expects a Q4 GAAP EPS of $0.06 to $0.21 and a fiscal 2020 GAAP EPS of $0.50 to $0.65. Management also expects global sales to finish down in Q4 and on the year roughly 12% to 17% due to COVID-19.
Taking a look at the balance sheet, as of the third quarter Starbucks reported a total debt level of $16.832 billion, up since Q2. On the other hand, as of June 30th, Starbucks maintained a solid cash on hand level of $4.196 billion.
Given the mixed numbers across the board, the analysts are also mixed but overall bullish on Starbucks. Currently, the mean price target is $85.25/share, representing a 1.13% gain.
Secondly, the high price target for Starbucks is $94.00/share, representing an 11.51% gain, and the low price target sits at $78.00/share, representing a -7.47% loss.
The big money is equally bullish on Starbucks. Currently, 67.13% of $SBUX is owned by institutions. Top holders include The Vanguard Group, State Street Global Advisors, and BlackRock Institutional Trust.
It is also important to note that Starbucks currently trades at a higher P/E ratio of 76.14 times, a P/S ratio of 4.10 times, and a market cap of $98.5 billion.
Moving into the charts, the technicals also flash mixed results. Due to the most recent market correction, $SBUX went from testing the $90/share threshold to falling back through its rough $84.50 support, down to its weak $83 range support.
On the bright side, Starbucks stock bounced firmly off its secondary support around $83.00 and is back to testing its previous support around $84.50. If the stock can break back through that support, a retest and run to $90/share is very possible.
Furthermore, the stock bounced off its 50-day moving averages, which both recently crossed up through the 200 day moving averages, a good sign of more upside to come.
Finally, the six-month RSI sits at 52.71, MACD continues a downward momentum with a range of 1.53 down to 0.8713, and the CCI rests at a negative -94.5259.
Given all of the technical factors, it seems that Starbucks is at an attractive price point and buying location.
In short, I firmly believe if Starbucks can continue its resistance to market volatility, the stock can continue higher.
I very much like Starbucks for the long run, and expect a recovery from COVID-19 that will only strengthen the company.
On the other hand, COVID-19 continues to be a major risk, and in the short and mid-term investors must be willing to take on that risk.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply opinion based on independent research.