Why Starbucks 'Sentiment Seems Poor' Ahead Of Q1 Earnings

As Starbucks Corp SBUX heads closer to reporting its first quarter earnings on Jan. 30 after market hours, analysts have begun assessing the company to update their investment stance.

Starbucks stock is down over 10% over the past year, likely owing to inflationary pressures that existed in most of 2023.

While the 50-day SMA has been treading towards the 200-day SMA, it appears to be running shy of crossing over it just yet. A crossover would be bullish for the stock. Let’s take a look at what volumes are telling us.

The on-balance volume (OBV) indicator has been and treading downward since mid-November. The OBV typically falls when volume on down days is stronger. Thus, a falling OBV reflects negative volume pressure that can foreshadow lower prices.

So, technical indicators reflect mixed sentiments toward Starbucks’ stock. Let’s now look at what an analyst, who recently reviewed the stock, has to say about Starbucks’ upcoming earnings and outlook.

The Starbucks Analyst: Piper Sandler analyst Brian Mullan gave a Neutral rating to the stock while decreasing his price target from $107 to $100 a share.

The Starbucks Thesis: Piper Sandler’s analysis of Starbucks revealed mixed sentiments. Despite perceived “sentiment seems poor” and potential near-term challenges, the company’s valuation compared favorably to historical trends.

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As the company heads towards reporting its first quarter fiscal year 2024 earnings, he saw the company achieving adjusted EPS guidance for fiscal 2024 given the company’s cost-saving initiatives, even if same-store sales (SSS) fall short of consensus.

Concerns about the U.S. consumer and restaurant industry traffic in the first half of 2024 contribute to analysts’ hesitations. A lack of clarity on Starbucks’ China business and uncertainty about future SSS trends in the region further complicates the outlook.

“We just don't feel like we have enough of a sense of what is going on in SBUX's China business… multi-year SSS trends can start to accelerate from here,” said Mullan.

Consequently, the recommendation of Neutral with an updated price target, suggested around 8% upside.

Mullan acknowledged positive risk-reward dynamics and relative value but expressed reservations about absolute upside potential. “even if one were to ‘haircut’ consensus adjusted EPS for 2025e a fair bit, the stock is trading at ~20x forward earnings, and that seems too cheap for a business of this caliber,” he said

SBUX Price Action: Starbucks stock was trading up 0.080% at $93.42 Friday at publication. Its 52-week range is $89.21 and $115.48.

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