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Starbucks stock forecast: Can the founder's return halt the slide?


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Warsaw, Poland. 23 April 2018. Sign Starbucks Coffee. Company signboard Starbucks Coffee.
Starbucks stock forecast: Have Q1 results given the share price a kick? – Photo: Shutterstock

News that founder Howard Schultz was returning to lead the global coffee company Starbucks (SBUX) gave the stock price a brief moment of joy in what has otherwise been a disappointing 2022. 

Starbucks' stock had been recovering well from the impact of the pandemic including hitting an all time high last July. But having opened 2022 on $116 the stock today (11 April) is at $81.55 a drop of nearly 30%. That includes a fall of 11% in April alone despite the news of Schultz's return as chief executive officer.    

He is likely to be combative on employee moves to form trade unions within the company.  

The company he founded in 1971 has grown from a single Seattle coffee roaster to a global chain of 32,000 coffee shops in 80 countries. Although the pandemic changed patterns of demand, Starbucks reported surging sales figures in its first-quarter results released on 1 February 2022. 

Could the unexpectedly high costs land the coffee chain in hot water, and what lies ahead for the Starbucks share price forecast in 2022? 

STARBUCKS STOCK PRICE FORECAST

SBUX stock analysis 

After seeing strong growth over the course of 2019, the Starbucks share price fell by over 35% between January and March 2020 as Covid-19 restrictions shuttered coffee shops worldwide.

But spring 2020 saw the share price mount a strong recovery: it more than doubled between April 2020 and July 2021, reaching an all-time high of $126.06 on 26 July 2021. 

Starbucks stock, 2017–2022

Starbucks shares have seen significant price volatility since then, falling in late October following the release of mixed fourth-quarter results

December 2021 saw the share price tumble below $110 as investors reacted to the news that employees in one of Starbucks’s Buffalo stores had voted in favour of union representation. The uncertainty surrounding increased union activity spooked those looking to invest in Starbucks, and the share price continued to trend downwards over the course of January 2022. 

Starbucks stock value fell by almost 20% between 3 January and 28 January 2022, dipping to $94.

Following the first-quarter results release on 1 February 2022, the Starbucks share price experienced limited movement, with the price rising by 0.45% over the course of the trading day

The relative strength index (RSI) for Starbucks is currently neutral at 38.22. Though an RSI below 30 signals that an asset is being oversold and undervalued, it does not currently suggest that the SBUX share price is due an upward price correction. 

Q1 results: Wake up and smell the coffee

Recent SBUX news was dominated by the first-quarter results released on 1 February 2022. The coffee chain reported net earnings of $815.9m, up from $622.2m in the prior-year quarter.

Sales figures were strong, with comparable store sales up by 13% on the prior-year quarter, and by 18% over the same period in the US. US sales figures also represented a 12% increase on Q1 2020 figures, suggesting that the Covid-coffee boom is showing no sign of slowing. 

But it wasn’t all plain sailing. Costs were impacted by greater-than-anticipated inflation and Covid-19 related pay and staffing costs. Starbucks reported GAAP (generally accepted accounting practices) diluted net earnings per share (EPS) of $0.69 in Q2, while non-GAAP EPS was $0.72, both missing analyst expectations of $0.80 per share. 

Leveraging FOMO

One of Starbucks’ greatest strengths is its ability to move with customer demand. From its origins as a single store brewing roasted coffee in Seattle, it has expanded to sell coffee from 32,000 stores in 80 countries and offers menu items as varied as White Chocolate Mocha Frappuccinos and Strawberry Acai Refresher. 

This novelty is not lost on customers. A recent report from location data analytics firm Placer Labs shows that Starbucks experiences a seasonal surge each year, with visits soaring during the Hallowe'en ‘Pumpkin Spice Latte’ season. 

As the report stated, “Starbucks knows how to leverage people’s natural loss-aversion – FOMO (fear of missing out), to use millennial-speak – by creating limited-edition drinks and cups, such as the now-classic red cups for the holiday season – so that customers feel like they are missing out when they do not partake in the time-sensitive offering.” 

Coffee seasonality, month-over-month change in visits

A proven necessity?

According to the Placer report, coffee showed itself to be a “proven necessity” in the US market over the course of the pandemic. 

Although overall dining traffic was down by 1.8% between December 2019 and December 2021, coffee shops saw demand increase by 7.5% across the same period. 

Coffee space, year-over-two-year change in visits

According to analysts at Placer, this growth is even more impressive given that the Omicron variant, and its persistent disruptions to work and school surged in December 2021. While people may be less likely to pick up a coffee on their way to the office, research from Placer suggests that late-morning visits have risen instead, accounting for more than a quarter of total demand.

First-quarter results revealed US same-store sales growth of 18% on a year earlier, and a 12% increase on a two-year basis. With users of its Starbucks Rewards programme increasing to 26.4 million representing a 21% annual increase, it looks like the coffee addiction in the US shows no sign of abating. 

International market 

While Starbucks is reporting strong domestic demand, international markets are on less of a sure footing. Starbucks has a significant international presence, not least in China, where its footprint has grown to 5,400 stores in over 200 cities across the Chinese mainland. 

International same-store sales fell by 3% year-on-year in the first quarter. Results were dragged down by the Chinese market – Starbucks’ second-largest market – which saw same-store sales drop by 14%.

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With the rise of Omicron raising the potential for further restrictions, Starbucks’ international revenues could remain subdued for some time. 

Buffalo Union

December saw Starbucks make the news as employees in two of its Buffalo stores voted to form a union. Starbucks was opposed to the move, preferring instead to work directly with employees.

“Our heritage and culture are built on the belief that by working directly together as partners, we can build a different kind of company,” said Rossann Williams, executive vice president and president of Starbucks North America, in a press release

“Every success we have ever achieved has been in direct partnership with one another – without an outside party between us,” Williams added.

As well as raising the prospect of further unionisation in US stores, the vote also highlighted well-publicised issues with staffing, training, equipment and call-outs. This led Williams to comment: “There are serious gaps in too many other stores in this market that fall short of the Starbucks Experience and represent some of the most challenging conditions, over and above the everyday complexity Covid-19 has brought.”

Starbucks’ January SEC filing stated that “While the number of partners represented by unions is not significant, if a significant proportion were to become unionised, our labour costs could increase and our business would be negatively affected by other requirements that could increase our costs, change our employee culture, decrease our flexibility and disrupt our business”. 

Rising costs

Amid these pressures, Q4 2021 saw Starbucks announce it would increase its average US retail hourly wage to almost $17/hr by summer 2022. 

Morningstar analyst Sean Dunlop previously identified cost inflation as one of the most serious concerns for restaurant operators last year, citing transportation bottlenecks and sharp rises in select food prices adding to near-term pressure.

And first-quarter results saw the coffee giant report higher-than-expected costs contributing to total operating expenses of $6.9bn, up from $5.9bn in the prior-year quarter. 

“Although demand was strong, this pandemic has not been linear, and the macro environment remains dynamic as we experienced higher-than-expected inflationary pressures, increased costs due to Omicron and a tight labor market,” said Starbucks president and CEO Kevin Johnson in a statement. 

Starbucks stock forecast for 2022

Is Starbucks stock ‘Buy’, ‘Sell’ or ‘Hold'? The shares were given a consensus but borderline ‘buy’ rating according to reports from 24 analysts. Starbucks stock had 12 ‘buy’ ratings, 12 ‘hold’ ratings and zero ‘sell’ ratings, according to data collected by MarketBeat at the time of writing (11 April 2022).

The average analyst price-target consensus for the time of writing was at $114.24, with SBUX stock price targets ranging from a low of $91 to a high of $135. 

CHART

First-quarter results released on 1 February 2022 triggered a flurry of analyst activity. The next day, 16 analysts lowered their Starbucks price targets, although all revised price targets did remain above the report date share price.

The lowest revised price target came from Piper Sandler, who reduced their Starbucks price prediction ranges to $100–$108 (a 1.26% upside on the report date share price). 

The highest revised-target prices came from analysts at Jefferies Financial Group with their $130–$142 target prices representing a 33% upside on the report date share price.

CHART

It’s worth noting that analyst predictions are frequently wrong, and forecasts are no substitute for your own research. Always perform your own due diligence before investing, and never invest or trade money you can’t afford to lose.

SBUX stock forecast: Looking forward to 2030

While analysts don’t normally give forecasts beyond 12 months, according to algorithm-based forecasting service WalletInvestor, Starbucks is a “good long-term investment”. 

According to the site’s Starbucks stock predictions, the share price could reach $101.8 by April 2023, and hit $118 by April 2024. From there, it is forecasted to rise to $132 in January 2025, $146 in April 2026 and $158 in April 2027.

Note that algorithm-based projections can be inaccurate as they are based on past performance, which is no guarantee of future results. 

Forecasts should never be used as a substitute for your own research. Once again, always perform your own due diligence before investing, and never invest or trade money you can’t afford to lose. 

FAQs

Is Starbucks a good stock to buy?

Starbucks shares were rated as a consensus ‘Buy’ according to reports from 24 analysts. Starbucks stock had 12 ‘buy’ ratings, 12 ‘hold’ ratings and zero ‘sell’ ratings  according to data collected by MarketBeat at the time of writing (11 April 2022).

It’s worth noting that analyst predictions are frequently wrong, and forecasts are no substitute for your own research. Always perform your own due diligence before investing, and never invest or trade money you can’t afford to lose.

WIll Starbucks stock go up or down?

The average analyst price-target consensus for the time of writing was $114.24, with SBUX stock price targets ranging from a low of $91 to a high of $135. 

It’s worth noting that analyst predictions are frequently wrong, and forecasts are no substitute for your own research. Always perform your own due diligence before investing, and never invest or trade money you can’t afford to lose.

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