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Starbucks (SBUX) is set to have a good morning, as the company received an upgrade from UBS to buy from neutral. The brokerage also upped its earnings forecast for Starbucks to $1.14 per share in fiscal 2010, up from $1.09 per share. For 2011, UBS expects Starbucks to pull in $1.34 per share, seven cents better than the brokerage's earlier forecast. UBS believes that benign costs and Starbucks' ongoing productivity programs are key to the company's success. That said, UBS feels that McDonald's (MCD) foray into the world of frappes and smoothies could "cannibalize frappuccino consumers from Starbucks." Such a move could hurt Starbucks' bottom line.
Technically, the stock performed very well during 2009, hitting its yearly low in March and then rallying. Each time the shares have dropped, they have found support from their 10-week and 20-week moving averages. This solid support will be needed as the stock battles potential resistance in the $25 region. Further bullish technical evidence is found when looking at a monthly chart. SBUX's 10-month moving average has completed a bullish cross of its 20-month and 50-month moving averages. These technical formations can signal a continued rally.
I have been bearish toward Starbucks for some time, mainly because I am not a fan of the company's CEO. That said, it is hard to ignore the solid technical performance the stock has logged during the past year. I am concerned that McDonald's will continue to cut into Starbucks sales, but it hasn't hurt the stock too much lately.
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