Tonight after the close, the coffee king of Seattle will unleash its fourth-quarter earnings report upon an anxious public. The consensus opinion on Wall Street is that Starbucks (NASDAQ: SBUX) will have banked 21 cents per share, a 23.5% increase from year-ago results of 17 cents. Analysts have been fairly skilled at projecting SBUX earnings of late; according to Briefing.com, SBUX has matched the Street's expectations in each of the past five reporting periods. A negative or positive earnings surprise tonight would be just that -- quite the surprise, indeed.
At its last earnings report in early August, the company warned that matching its earlier estimate for fiscal 2007 per-share earnings of 89 cents would be "very challenging." A quarterly showing of 21 cents would put full-year results at 87 cents, a 19% increase from the previous year.
Starbucks is not the high-flier it once was, in terms of price action. As sales and earnings have inevitably leveled out (quarterly earnings are showing a year-over-year gain of about 9%), the stock has sagged. SBUX shares hit a new all-time high last November but has been in decline mode ever since. In the last 12 months, the stock has given back nearly 40% of its value, breaking through many levels of technical support along the way.
One trendline of support that hasn't yet given way is the 80-month moving average, which has not been breached since early 1999. This moving average is currently perched just below the $22 mark, or about 10% south of Starbucks' current level. Keep an eye on the 80-month average to potentially contain further selling pressure in the intermediate term.
Beth Gaston Moon is an analyst at Schaeffer's Investment Research.
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Reader Comments (Page 1 of 1)
11-15-2007 @ 5:56PM
Nick Roche said...
Well, Q4 came out and I must say it wasn't bad; however, from the looks of where the price is now, it appears I may be the only one that thinks that. This stock is so way oversold that I'm surprised someone of stature hasn't made a public comment about it and said enough is enough.
Let's look at the facts about Starbucks. This company is a growth company, is set to double in the next 5 years, and has a PE of less than 22 next years estimated earnings. Furthermore, it has a definite brand following. Unlike McDonalds, Burger King, or other fast food stores, Starbucks is truly an adult hang out , so you don't really have to worry so much about screaming kids hanging and riding on rides, messing the tables and chairs, and running around bumping into others. The ambiance has no comparison between Starbucks and the other establishments. Let's face it, where would you rather hang out and meet up with your friends and have a good conversation?
With the above in mind, it is utter nonsense to see the stock price at 22.00 a share! Tell me which other food chain that is a GROWTH company that is set to double in 5 years, and has a PE of 22? Not McDonalds, not YUM Brands, no, none of them. And yet, they get praised, upgraded, and the public is told that the new great place to get your morning coffee and read the morning paper is a place called McDonalds, where the smells of fast food grease, plastic chairs and tables, animal kids, all will lend to an incredible coffee break experience.
Advice to all. Look at the chart. When this stock is finally noticed as an undervalued stock, it will take less than 8 weeks for the price to shoot back to 35 a share. It's happened before. Analysts are consistently wrong. The will be a 50 billion dollar company in 5 years. I have been compelled to buy into this stock after watching it go to below 22 this evening. This stock should be trading at over 30 next years earnings PE. That puts the stock price at over 31, where it currently should be, if not higher.