On Thursday afternoon, coffee king Starbucks (NASDAQ: SBUX) will report third-quarter earnings. Currently, expectations call for a profit of 21 cents per share on revenue of $2.39 billion. A year ago, SBUX earned a penny per share in the third quarter, with revenue checking in at $2.52 billion. Fundamentally, SBUX has undertaken a number of cost-cutting measures included closing stores and cutting the prices on some of the company's easier-made beverages (this move was countered by raising the prices on some of SBUX's "more complicated beverages"). Worker layoffs have also had an impact on the company's bottom line. As for good news, SBUX announced that is going to keep 27 stores open that it had originally targeted for closing. This move was made after the firm reviewed its finances. I have long criticized SBUX for its spend-happy ways, but it seems that the company is trying to tame these tendencies. This does not mean that the firm doesn't still spend money loosely, but it is a start.Technically, SBUX faces overhead resistance at the $20 level, which rests directly overhead (SBUX is currently trading in the upper $19 region). Solid earnings should help to push the stock through this resistance. The question is, once the stock breaks the $20 level, will it be able to hold on to the prosperity? The shares topped this level for the first time in more than a year recently, but they have since shrunk back and are now headed toward potential support from their 20-week moving average. This trendline has acted as support in the past, and could fill the same role should earnings disappoint.
Here is my concern: what if SBUX misses expectations after taking all of these cost-cutting measures? There is potential support in place, but there is quite a fall in store if SBUX is headed toward its long-term trendlines. Yes, the 20-week moving average provided support in the past, but if this resistance is lost, SBUX's 10- and 20-month moving averages have converged in the lower $17 region. This potential layer of support could come in to play if SBUX's earnings (and/or forecast) disappoint. One thing is certain; earnings reports often provide the impetus for fast stock moves.
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