Starbucks shares continue to trade in a bull market. Should I invest?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Mar 8, 2021
  • Starbucks shares extended their correction from the recent highs
  • Covid-19 pandemic continues to impact the company's business
  • Bill Ackman's Pershing Square Capital Management reduced its holdings in Starbucks

Starbucks (NASDAQ: SBUX) shares extended their correction from the recent highs while the Wall Street analyst target is around 6% above the current price. There are certainly better long-term investment opportunities at the moment, even though Starbucks has an excellent position in the market.

Fundamental analysis: Covid-19 pandemic continues to impact the company’s business

Starbucks is an American multinational chain of coffeehouses and roastery reserves that operates over 30,000 locations worldwide in more than 70 countries. Starbucks shares have been moving in an uptrend last several months, but it is important to say that the Covid-19 pandemic continues to impact its business.

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Starbucks reported FQ1 results in January; total revenue has decreased by -4.9% Y/Y to $6.75B while Q4 GAAP EPS was $0.53 (beats by $0.05). Comparable sales in the Americas declined around 6% in FQ1 while global comparable-store sales fell 5%.

Total revenue has decreased above expectations (-$170M), but the company raised its FY 2021 outlook and announced that it expects global sales growth of around 20%. Starbucks expects GAAP EPS in the range of $2.42 to $2.62 for the 2021 fiscal year, while the board of directors said that a full comparable sales recovery is expected by the end of 2022.

“We remain optimistic about our robust operating outlook for fiscal 2021 as well as our ability to unlock the full potential of Starbucks to create value for our stakeholders,” says CEO Kevin Johnson.

Despite this, Bill Ackman’s Pershing Square Capital Management reduced its holdings in Starbucks recently from 10.13 million shares to 10.07 million shares. On the other side, BMO Capital Markets assigned a buy rating on Starbucks with a $120 price objective as it sees Starbucks as an obvious economy reopening pick.

“We view SBUX as a reopening beneficiary with meaningful potential upside to FY21/FY22 consensus, partly driven by comp contributions from sales transfer due to the US asset base transformation, accelerating digital momentum, easing competitive dynamics in China, and steeper margin recovery,” said Andrew Strelzik, an analyst from BMO Capital Markets.

There are some obvious risks when it comes to investing in shares of this company; the company’s business will be affected by the pandemic for a while, and the upside remains limited for now. Starbucks shares could advance again above the $110 resistance, but my opinion is that there are certainly better long-term investment opportunities at the moment.

Technical analysis: Starbucks shares remain in the bull market

When we look at the chart below ( one year period), we can see that  Starbucks shares have advanced from $50 above $110, and as long the price is above this trend line, this stock remains in the bull market.

Data source: tradingview.com

If the price jumps above $110, it would be a signal to buy shares, and the next target could be around $115, but if the price falls below the $100 support level, it would be a firm “sell” signal.

Summary

Starbucks shares extended their correction from the recent highs while the Wall Street analyst target is around 6% above the current price. The Covid-19 pandemic continues to impact its business, and Starbucks reported that total revenue has decreased above expectations in Q1. Starbucks shares remain in the bull market, but if the price falls below the $100 support level, it would be a firm “sell” signal.

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