Analysts are optimistic ahead of Starbucks earnings: time to invest?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jul 17, 2021
  • Starbucks reports its fiscal second-quarter results on 27th July.
  • Analysts are upbeat ahead of earnings after issuing positive comments.
  • Should you buy SBUX shares now?

Starbucks Corp (NASDAQ:SBUX) shares edged lower on Friday despite the release of some upbeat analyst reports. Oppenheimer analysts said they expect the company’s Q2 earnings to beat expectations adding that the outlook looks even brighter. 

Analyst Brian Bittner said

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Our updated analysis identifies further upside to Street’s financial forecasts through 2022. Major traction from self-help strategies, measurable gains in US mobility data and a deep-dive analysis of consensus underpin our view that sales are positioned to outperform. Our work also suggests management’s EPS guidance for 2021 could prove conservative, and in 2022 we anticipate outsized EPS growth of >20%—far better than any global restaurant peer.

Although the analyst noted Starbucks’ current valuation to be in line with peers, Bittner maintained an overweight (buy) rating on the stock with a price target of $140.00 per share.

Should you buy SBUX shares ahead of Q2 earnings?

From a fundamental perspective, Starbucks shares seem to be steeply priced at a price-earnings ratio of 142.19. However, after factoring in earnings growth expectations for the next year and over the next five years, SBUX becomes a relatively attractive investment opportunity. 

Analysts expect Starbucks to register an EPS decline of about 73.10% this year. However, if the company can maintain its streak of outperforming expectations, the earnings decline could be lower than expected. Furthermore, things could get more exciting next year when earnings resume growth with a 20.35% increase before maintaining an average growth rate of about 52.60% in each of the following five years.

Therefore, Starbucks’ future is compelling, and investors willing to overlook any short-term bottlenecks could stand to benefit significantly.

Source – TradingView

Technical overview: Starbucks stock price prediction for Q3 2021

Technically, Starbucks shares have rallied to new multi-year highs after gaining more than 60% over the last 12 months. The SBUX stock price recently hit overbought conditions in the 14-day RSI before pulling back on Friday. 

The stock also appears to be enjoying solid support from the 100-day moving average after remaining above it since August last year.

Therefore, although the SBUX stock price has spiked recently, investors can still look for extended gains by targeting profits at $123.27 and $130.01. The key support levels are $115.61 and $109.23.

Bottom line: the catalyst for buying Starbucks shares now

Although Starbucks’ current valuation looks steep at a P/E ratio of 142.19, the forward P/E of about 32.97 is compelling. The company is notable for outperforming analyst expectations, and Oppenheimer seems optimistic it will do it again when it announces Q2 results on 27th July.

Therefore, it may be best to buy the stock now ahead of potential gains fueled by another impressive earnings report.

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