Free Trial

An Opportunity To Buy Starbucks Is Knocking On The Door 

Starbucks stock price

Key Points

  • Shares of Starbucks are imploding after reporting a strong quarter. 
  • The move is a knee-jerk reaction to the move and profit-taking after a strong rebound. 
  • The outlook is robust and includes capital returns for investors growing at a double-digit pace. 
  • 5 stocks we like better than Starbucks

Shares of Starbucks NASDAQ: SBUX were down more than 6% after the company disappointed the market with guidance. As bad as the move is, it is not a signal to run for the hills or start shedding a position. The pullback is a knee-jerk reaction to an as-expected event in which investors secretly hoped for more.

The takeaway from the Q2 report is that the transition to new CEO Laxman Narishman is complete, the company is outperforming consensus targets and the guidance was reaffirmed with growth, improving margins and sustainable capital returns. What this means for investors is a chance to buy into a name at a discount when it should be moving higher. 

Starbucks Falls On Robust Report, Solid Guidance 

Judging the quality of Starbucks’ Q2 report by the price action, you might think the company whiffed, but it didn’t. The $8.7 billion in revenue is up 14% compared to last year, and it beat the consensus by 320 basis points on strength in North America and International markets. North American sales grew by 12% while International grew by 7%, supported by a systemwide 6% gain in ticket counts compounded by a 4% increase in ticket average. On a comp basis, sales are up 11%, aided by adding 464 net new stores in the quarter. Reward membership also supports sales, with active rewards membership up 15% to 30.8 million. 

The margin is also good news and is no reason to sell the stock. The GAAP and adjusted operating margins expanded by more than 100 basis points, the adjusted by 130, with the GAAP outpacing adjusted due to the sale of assets. The takeaway is that GAAP and adjusted earnings grew faster than revenue, leaving the adjusted EPS at $0.74 and $0.09 or 1380 bps better than expected. 

The guidance is tepid given the Q2 strength, but uncertainties about the economy could have a material impact on GDP, not just Starbucks sales, so reaffirming is a wise choice. Assuming the company can continue to navigate the times as it has, the guidance is likely cautious. Regardless, Mr. Narishman and the company see results at the high end of the range, which is a sign of some strength, if not what the market wanted. 

Capital Returns Will Support Starbucks In 2023 

Starbucks investors also have capital returns on their side. The company’s dividend isn’t “high yielding” at 1.85% but beats the S&P 500 average; it is growing and compounded by share repurchases. Starbucks has increased its distribution for 12 consecutive years at a double-digit CAGR and is expected to continue at a double-digit pace. The company also repurchased $303 million in shares, or 3 million shares, during the quarter and has 47.7 million left under the current authorization. The 47.7 million shares are worth about 4% of the float and are part and parcel of the distribution growth strategy. 

The analysts' activity is mixed following the release, but the takeaway is bullish. The 7 reports on Marketbeat’s tracking page include 2 price target reductions, but they are to levels above the consensus, and the others are all raised to above consensus. This has the consensus at fair value but moving higher, and many new targets are a 10% to 15% premium to it. 

The technicals are favorable despite the pullback in price action. The uptrend and Vee recovery that began when Schultz retook the CEO position last year is not over. The pullback returns the price to a solid support level that should produce a bounce. At worst, this market is range bound at current levels, but at best, it will regain its footing and move to new highs by the end of the year. Assuming Mr. Narishman can execute his plans.  

→ Kiss of death from Joe Biden (From Porter & Company) (Ad)

Should you invest $1,000 in Starbucks right now?

Before you consider Starbucks, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Starbucks wasn't on the list.

While Starbucks currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

The 10 Best AI Stocks to Own in 2024 Cover

Wondering where to start (or end) with AI stocks? These 10 simple stocks can help investors build long-term wealth as artificial intelligence continues to grow into the future.

Get This Free Report
Thomas Hughes
About The Author

Thomas Hughes

Contributing Author

Technical and Fundamental Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Starbucks (SBUX)
4.7569 of 5 stars
4.76 / 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

Opportunities Arise as Stock Market Rotates from Big Tech

Opportunities Arise as Stock Market Rotates from Big Tech

Discover how the great stock rotation is shaking up the market and what it means for your investments, including the companies poised for growth.

Related Videos

3 Top Market Leaders Splitting Their Stocks
CPI News Breakdown: Key Market Moves to Follow
Inside Pelosi’s Latest Stock Moves

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines