Back to top

Starbucks Earnings: Buy SBUX Stock Down Over 25% from Highs?

Read MoreHide Full Article

Starbucks (SBUX - Free Report) stock is down 27% from its highs and trading 20% below its average Zacks price target heading into its Q1 FY24 earnings release on January 30.

The question we explore today is should investors consider buying Starbucks on the dip for long-term upside?

The Basics

Starbucks is a household name around much of the globe, operating over 38,000 stores and counting. The firm remains the go-to coffee chain in the U.S. and other major economies and is poised to fend off growing challenges from McDonald’s ((MCD - Free Report) ) and others in the coffee and to-go drink space.

SBUX’s e-commerce, delivery, and other digital initiatives such as its hugely successful app have helped it thrive in the changing retail environment. The company is fighting back against slowing growth in China, which is hurting many other companies across various industries. Starbucks is working to expand in the next potential booming growth market, with plans to operate 1,000 stores in India by 2028.

Zacks Investment Research
Image Source: Zacks Investment Research

On top of that, the company is working to improve how its stores function for the sake of its employees. Laxman Narasimhan took over as CEO last March and made it his mission to work alongside baristas to help make their jobs better. Improving store-level employee satisfaction has become a major goal under the new chief executive as Starbucks deals with growing labor disputes and unionization efforts in the U.S.

Growth Outlook

Despite the turbulence, Starbucks reported record sales in its fiscal 2023, with revenue up 12% and U.S. comps 9% higher. SBUX is projected to post 10% sales growth in both FY24 and FY25 to reach $43.32 billion in 2025 vs. $35.98 in FY23. The coffee chain’s projected revenue expansion follows roughly 16% average sales growth in the trailing three years.

Zacks Investment Research
Image Source: Zacks Investment Research

Meanwhile, Starbucks is projected to grow its adjusted earnings by over 16% in 2024 and 2025, which comes on top of 20% bottom line growth last year. SBUX’s EPS estimates have stagnated over the last 12 months and dipped slightly heading into Q1 earnings.

Still, it has easily topped our estimates in the trailing three quarters and it earns a Zacks Rank #3 (Hold) right now.

Performance, Technical Levels & Valuation

Starbucks has climbed 900% in the last 20 years vs. the Zacks Retail Sector’s 390% and the S&P 500’s 335%. The stock is, however, neck-and-neck with retail during the past five years, up around 38%. SBUX has been hit hard over the last year, down 15% vs. the S&P 500’s 20% run and McDonald’s 8% climb.

Zacks Investment Research
Image Source: Zacks Investment Research

SBUX is currently trading slightly under nearly all of its key short-term and long-term moving averages. However, the nearby chart shows us that Starbucks rarely stays below its 50-month moving average for long (outside of the financial crisis). SBUX is also near some of its most oversold RSI levels by historic standards.

The downturn, coupled with its earnings growth outlook, helps Starbucks trade at a 43% discount to its highs and 20% below its 10-year median at 21.1X forward 12-month earnings.

SBUX trades at a slight discount to the Zacks Retail sector and 12% below McDonald’s. The nearby chart highlights that Starbucks is trading at some of its lowest forward earnings multiples over the last 10 years.

Bottom Line

The downturn is what might intrigue investors with long-term outlooks about Starbucks.

A great company with expansion on the horizon in an industry that isn’t going out of style is currently trading 27% below its all-time highs while the broader market rallied to fresh records. 


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Starbucks Corporation (SBUX) - free report >>

McDonald's Corporation (MCD) - free report >>

Published in