International company Starbucks Corporation owns the largest network of coffee shops in the world: over 17,000 locations in 50 countries. As of April 27, 2012, the company’s market capitalization decreased by 0.23% from its historical high and amounted to $43.27 billion.
Among the main news from last week that influenced the markets, it is worth highlighting the speech of the Chairman of the US Federal Reserve, Bernanke, on Wednesday, April 25, after the interest rate meeting. It was stated that the regulator is ready to return to discussing quantitative easing if necessary. This phrase was significant for market participants and opened up the prospect of growth for major investment instruments. As a result, the DJI index rose by 1.37% last week, the S&P 500 index by 1.69%, and the US food and beverage sector index by 1.21%. At the same time, shares of Starbucks Corporation fell by 3.29% during the same period, reaching $57.27.
Earnings per share turned out to be higher than the projected value by 2.56%, amounting to $0.40, which, however, was worse than in the fourth quarter of the previous year ($0.50). Also, operating profit of Starbucks Corporation decreased by 22.5% and amounted to $430.4 million. The company can record the opening of 176 new sales points worldwide during the reporting period. The largest number was in the Asian market (83 restaurants), followed by the US market (76 restaurants).
Thanks to hard work and quality leadership of Howard Schultz, Starbucks Corporation continues to develop dynamically, despite difficult external conditions. The company’s financial indicators for the first quarter were indeed worse than in the previous period, which, in our opinion, may put some pressure on the share price in the short term or we will observe price consolidation. That is, we do not consider the situation as an opportunity for a rapid decline in prices and have no intention of selling shares long-term. So, it is worth paying attention to the ambitious plans and prospects of Starbucks Corporation for the second quarter and until the end of 2012. Already in the second quarter, an increase in the company’s net revenue by 3.1% to $3.3 billion is expected, earnings per share could rise to $0.46 (by 15%), which will certainly support the growth of share prices or help maintain already gained positions. The total number of new restaurants planned for opening this year is about 1000. Also, optimistically sounds the information that after the results of the first quarter, the company raised expectations for annual earnings per share to $1.84 against $1.81, which is 21% higher than the 2011 figure.
Also worth noting is that after the quarterly corporate report, Western analytical departments of leading companies increased their targets for the share price of Starbucks Corporation. In Citigroup from $57 to $66, in Goldman Sachs also – $66, in Deutsche Bank from $61 to $64.
Trading Recommendation:
Upon breaking above the resistance line, you can open a long position with a target at the resistance level of $62. In case of a break of the $62 resistance level – target at $64-$66.
Upon breaking the support level of $55.60, open a short position with a target of $52-$52.40.
FAQ
What caused the drop in Starbucks’ stock price?
The drop in Starbucks’ stock price was due to the results of the company’s first-quarter 2012 financial report, which showed lower-than-expected revenue and operating profit.
What are the future expectations for Starbucks?
Analysts expect an increase in Starbucks’ net revenue and earnings per share in the second quarter of 2012, along with the opening of around 1,000 new restaurants.
What is the technical analysis for Starbucks’ stock?
Technically, the resistance level for Starbucks’ stock is at $62, while the support level is at $55.60. The RSI indicator has exited the overbought zone, indicating potential for further price declines.
