Starbucks Is Up By 7%, Here Is Why

Key Insights

• Starbucks reported quarterly results, whcih were mostly in line with analyst expectations. 

• The company had a strong quarter in the U.S.

• Starbucks stock had recently declined to reasonable valuation levels, but it will likely need more positive catalysts for sustainable upside. 

Starbucks Stock Rallies As Weakness In China Is Offset By Strong Sales In The U.S.

Shares of Starbucks gained strong upside momentum after the company released its quarterly results. Starbucks reported revenue of $7.6 billion and adjusted earnings of $0.59 per share, mostly in line with analyst estimates.

The company noted that global comparable store sales increased by 7%. In North America and U.S., comparable store sales increased by 12%. Meanwhile, China comparable store sales declined by 23% due to the negative impact of coronavirus-related lockdowns.

The surprising strength of Starbucks’ business at home offset the problems in China and provided significant support to the company’s stock. It should be noted that Starbucks stock was down by more than 35% year-to-date before the release of the report, so market’s expectations were low.

What’s Next For Starbucks Stock?

Analysts expect that Starbucks will report earnings of $3.22 per share in the current fiscal year and earnings of $3.73 per share in the next fiscal year, so the stock is trading at 21 forward P/E.

Analyst estimates have been moving lower in recent months, which is not surprising as analysts reacted to the company’s problems in China. It remains to be seen whether the recent quarterly report will be able to change this trend.

While Starbucks valuation has declined to reasonable levels, the stock’s near-term dynamics will depend on general market sentiment. In case the market’s pullback continues, Starbucks stock will also find itself under pressure as it does not have enough positive catalysts to go against the general market trend.

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This article was originally posted on FX Empire

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