Starbucks Stock Down 5% in March – Time to Buy SBUX Stock?

The price of Starbucks stock has gone down 5% so far this month as geopolitical tensions prompted by the Russia-Ukraine war and an expected shift in macroeconomic conditions in the United States weighed on the valuation of the world’s most popular coffee store chain.

A move toward unionization in multiple states of the United States including Arizona, New York, and even Seattle – the company’s home – have scared market participants.

Workers United – a nationwide organization that advocates for workers’ rights – is apparently supporting the election of unions for the company in as many as 100 states.

Meanwhile, Starbucks announced yesterday that the legendary founder and former Chief Executive of the coffee store chain – Howard Schultz – will once again take the helm as interim CEO after Kevin Johnson announced that he will be retiring after a 13-year tenure.

Johnson’s departure will be effective on 4 April. The move is part of a planned succession that started nearly a year ago. A new acting CEO is expected to be appointed during the fall season with the help of Russell Reynolds Associates.

Mr. Schultz will be volunteering for the role of interim CEO at Starbucks and will receive $1 in compensation for his services.

“When you love something, you have a deep sense of responsibility to help when called. Although I did not plan to return to Starbucks, I know the company must transform once again to meet a new and exciting future where all of our stakeholders mutually flourish”, the founder of the Seattle-based global coffee store chain stated.

Starbucks stock surged more than 5% during yesterday’s stock trading session in the context of a strong broad-market uptick that came after the Federal Reserve announced multiple changes in its monetary policy including its first post-pandemic interest rate hike.

What could be expected from this coffee stock after this interesting development? In this article, I’ll be assessing the price action and fundamentals of Starbucks stock to outline plausible scenarios for the future.

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Starbucks Stock – Technical Analysis

The price of Starbucks stock has declined 25.3% so far in 2022 amid the confluence of multiple negative catalysts including weakness in the performance of the company in China, elevated inflationary pressures, challenging labor market and supply chain dynamics, and unionization risks.

Back in January when I last wrote about SBUX, I mentioned that a triple-top formation had popped up and that increased the downside risk for the stock if the price action failed to climb above $118.

Since that article came out, the stock has lost more than 25% of its value while it is trading 31% below its 52-week high and 20.3% below its 200-day simple moving average.

Momentum indicators could be favoring a short-term bullish outlook as the Relative Strength Index (RSI) has not made a lower low despite the price moving lower.

Meanwhile, the price action tagged the upper bound of the price channel highlighted in the chart. Trading volumes yesterday were quite high as they doubled the 10-day average.

Moving forward, if the price decisively breaks above this descending channel and crosses the $94 mark chances are that the downtrend could be progressively reversed for SBUX stock.

Starbucks Stock – Fundamental Analysis

Revenues for Starbucks recovered already from the hit they took during the pandemic as they ended the 2021 fiscal year nearly 12% above 2019’s figure.

Gross margins have climbed back to pre-pandemic levels despite supply chain bottlenecks and operating margins have also improved compared to 2019.

For the upcoming 2022 fiscal year, the company’s revenues are expected to climb 12.8% while earnings are expected to stay relatively flat amid the impact of inflation in the firm’s top-line margins.

Based on the firm’s forecasted adjusted EPS for 2022, Starbucks is trading at a forward P/E ratio of 26x. The stock is also trading at 23 times its free cash flows from the past twelve months.

SBUX is currently offering a 2.2% dividend yield. Based on the firm’s historical cash flow generation capacity, this dividend can be considered stable. Moreover, Starbucks has been repurchasing billions of dollars of its common stock during this fiscal year and may continue to if the price keeps declining.

At these levels, the valuation for Starbucks stock seems relatively fair as long as the company keeps growing its operations in China – its most promising growth engine for the future.

Aside from that, the Federal Reserve’s seemingly decisive stand to fight inflation in the US is encouraging and could lead to an improvement in the company’s bottom-line profitability in the following one to two years depending on whether these measures work as expected.

With this in mind, the outlook for Starbucks from a fundamental perspective is neutral-to-bullish if macroeconomic conditions start to improve.

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