Starbucks stock price ignores expected plunge in Q2 earnings, prints 4-week high

Starbucks stock price ignores expected plunge in Q2 earnings, prints 4-week high

  • Starbucks expects fiscal second-quarter earnings of $0.32 per share instead of $0.60 per share
  • The coffee chain suspends buyback program and withdraws full-year guidance
  • Shares trade in the positive territory today, hit 4-week high above $72

Shares of Starbucks (NASDAQ:SBUX) are trading around 1% higher today despite expectations that its fiscal second-quarter earnings will drop by 46% amid the COVID-19 outbreak.

Fundamental analysis: Worst is still to come, warns Starbucks

Starbucks said last night that it expects to earn $0.32 per share for its fiscal second quarter, which is almost half the earnings of $0.60 per share earlier communicated.

Moreover, the coffeehouse giant said it is pausing its buyback program, and has also withdrawn the full-year guidance amid the coronavirus-related uncertainty. Starbucks previously announced that it expects its revenue to rise between 6% and 8% in 2020.

The company also said that it is fearing that the worst is yet to come.

“Based on the late-quarter onset of COVID-19 impacts to our business results in the U.S. and other markets globally—and as the flow-through impact of lost sales in the U.S. is materially greater than the flow-through impact of lost sales in China—we expect the negative financial impacts to Q3 to be significantly greater than they were in Q2 and to extend into Q4,” said the company.

The same-store sales fell 3% in the U.S., mainly due to the disastrous three last weeks of March. Up to March 11, U.S. same-store sales jumped 8%. For instance, same-store sales crashed between 60% to 70% in the last week of March.

“There is no question that COVID-19 has meaningfully pressured SBUX’s business on a global basis in recent months. While the company has not updated its guidance to reflect the pandemic, our best estimate at this time is to forecast a 5% drop in FY20 revenues (year-end September) and a ~19% drop in FY20 EPS,” said Citigroup analyst Wendy Nicholson.

“However, we are optimistic that SBUX will return to growth next year, as we forecast 16% revenue growth and 32% EPS growth in FY21,” she added.

Nicholson initiated coverage of Starbucks with a buy rating and $82 price target. Shares of Starbucks closed at $71.57 yesterday.

Technical analysis: Bulls eyeing $80

Starbucks stock price has now recovered half of the losses it recorded since January, as today’s high of $72.98 is also the 4-week high. Shares of Starbucks trade around 18% lower since the start of the year. 

Starbucks stock daily chart (TradingView)

Looking higher, the buyers are eager to push the price action towards the “magnet” zone between $80 and $82. These levels host a confluence of important price points and then attract the price action. Before that, the bulls will face $77 as an intraweek resistance.

Summary

Shares of Starbucks are trading in green today, despite the company’s latest report which predicts a 46% drop in earnings for the fiscal second quarter. Starbucks stock price is now trading comfortably above the $70 mark, with around half of the most recent losses recovered.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

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