Is Starbucks a buy after dropping 30% in 2022?

With a market cap of $101.33 billion, Starbucks Corporation (SBUX) is the largest coffee chain in the world. The Company operates through three segments: North America; International; and channel development. Additionally, SBUX has an ISS Governance QualityScore of 1, indicating low governance risk.

On April 4, SBUX founder Howard Schultz was named the company’s interim CEO and a director on the board. After his reappointment, he said: “I am returning to the company to work with all of you on the design of our next Starbucks – a profound evolution of our company with a purpose, where we each have an agency and where we work together to creating a positive impact in the world… Our vision is to once again reinvent a one-of-a-kind business where the value we create for each of us as partners, for each of us as customers, for our communities, for the planet, for shareholders — comes because our company is designed to share success with each of us and for the collective success of all our stakeholders.

One of Schultz’s first actions since his reappointment was the suspension of the $20 billion share buyback program. This, coupled with a bleak outlook for earnings growth, has prompted investors to take a bearish outlook on SBUX. The stock has fallen 29% since the start of the year.

Here’s what could shape SBUX performance in the short term:

Disappointing finances

SBUX’s total net revenue increased 19.3% year-over-year to $8.05 billion in the first quarter of Fiscal 2022 ended January 2, 2022. Operating income was $1.78 billion, up 28.9% from the same period last year. Earnings before income taxes (EBT) and net profit increased 31.4% and 31.1% year-on-year to $1.06 billion and $815.90 million , respectively. Non-GAAP EPS was $0.72, 9.5% below the consensus estimate of $0.80.

Cash dividends declared per share were $0.49, down 45.6% from the prior year value. International same-store sales fell 3% year-over-year during this period. Additionally, non-GAAP operating margin decreased 30 basis points from the same period last year to 15.1%.

Higher-than-expected inflationary pressures and increased operating costs due to Omicron Variant COVID-19 and a tight labor market caused the company to fall short of consensus EPS estimate during this trimester.

Mixed growth prospects

Analysts expect SBUX revenue to grow 14.2% year-over-year to $7.61 billion in the second quarter of fiscal 2022 (ending March). However, the consensus EPS estimate of $0.61 for the quarter about to be released indicates a decline of 1.8% from last year. Additionally, Street expects SBUX revenue to grow 13.3% from the prior year quarter to $8.49 billion in the fiscal third quarter, but EPS to decline by 1. 6% year over year over the same period.

Nonetheless, the company’s revenue and EPS are expected to improve 12.7% and 2.7% year-over-year to $32.75 billion and $3.33, respectively, over the course of the year. of fiscal year 2022 (ending in September). Consensus estimate for revenue and EPS of $35.72 billion and $3.89 for fiscal 2023 indicates a 9.1% and 16.8% year-over-year increase, respectively .

Consensus Rating and Price Target Indicate Upside Potential

Of the 22 Wall Street analysts who rated the stock, 13 rated it Buy, while nine rated it Hold. The 12-month median price target of $112.95 indicates a 37% upside potential. Price targets range from a low of $91.00 to a high of $135.00.

POWR ratings reflect uncertainty

SBUX has an overall rating of C, which equates to Neutral in our proprietary POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

The stock has a C rating for Momentum and Value. It is currently trading above its 200-day moving average of $107.76 but below its 50-day moving average. moving average from $90.55, in sync with the Momentum Note. Additionally, SBUX is currently trading at 2.92 times its forward sales, 223.1% higher than the industry average of 0.90x. However, its 12-month PEG multiple of 0.04 is 63.8% below the industry average of 0.11, justifying the Value rating.

Of the 44 B-rated securities Restaurants industry, SBUX is ranked #16.

Beyond what I said above, check out SBUX Ratings for Growth, Sentiment, Stability, and Quality here.

Conclusion

Despite being one of the largest restaurant chains in the world, the company is still susceptible to persistent macroeconomic headwinds. Given soaring inflation rates and rising COVID-19 cases in various parts of the country, analysts expect SBUX’s profit margins to suffer in the coming quarters. Thus, investors should wait for the global economy to stabilize before investing in the stock.

How does Starbucks (SBUX) compare to its peers?

Although SBUX has a C rating in our proprietary rating system, one might consider looking at its restaurant industry peers, Good Times Restaurants Inc. (GTIM), Nathan’s Famous, Inc. (NAT) and The ONE Group Hospitality, Inc. (STKS), which have an A (Strong Buy) rating.


Shares of SBUX rose $0.03 (+0.04%) in after-hours trading on Friday. Year-to-date, the SBUX is down -29.95%, compared to a -5.47% rise in the benchmark S&P 500 over the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing stocks. After…

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