STARBUCKS FACING KEY RESISTANCE IN THE SHORT-TERM

Starbucks Corp. SBUX shares have rallied off of the October lows nicely but are now facing critical upside “correction resistance” just above current levels. Do the company's fundamentals provide enough of a coffee rush for the stock to blow through resistance? Or, will the bears win this battle on the power of technical resistance? Let's take a look… What the bulls see in SBUX… • A 1.6% dividend yield with a nice, low 38% payout ratio • A cheap price-to-sales ratio of 3.54 • Gross profit margins of 16.98% that spin off $607 million in annual operating cash flows • A return on assets of 15.68% and a return on equity ratio of 42.39% • Clean balance sheet metrics: o A current ratio of 1.37 o Debt to equity ratio of 38.84% What the bears see in SBUX… • Some expensive valuation metrics: o A PE of over 20 with estimated 2015 growth in revenues and EPS of 10.30% and 16.9% respectively o A price-to-book ratio of 11.06 The technical take on SBUX shares… Technicians note that Starbucks may be nearing a critical upside “correction resistance” level at $78.90. If the stock can conquer that level on a closing basis, a run up to $82 may be in the cards. However a failure to eclipse the $78.90 level on a closing basis should lead to a move down to the $67.83 projected support level. Overall… A lot about the Starbucks short-term picture depends on how the stock does at the key resistance level. At Sea Change, we will be considering buys either on a breakout above that level (and subsequent re-test as new support) or on a pullback all the way down to $68.