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Starbucks: Brewing Value?

Regarding Starbucks (Nasdaq: SBUX), let's address the elephant in the room - the stock price. At $91.39, Starbucks is hovering near its 52-week low of $89. 

Over the past five years, the stock price for Starbucks is up 21%. By comparison, the S&P 500 is up 81%.

One of the reasons behind Starbucks' lackluster performance is the departure of Howard Schultz as CEO in 2017. Schultz did make a brief comeback as CEO from 2022 to 2023, but even that couldn't save the sinking ship. Problems for the company continued, including labor disputes with unionized workers.

Although the S&P 500 is up 10% in 2024, Starbucks is down 2.43%.

Despite all the doom and gloom, Starbucks is still chugging along and even had record revenue recently. The company is still growing and making bank. I guess people can't resist their overpriced, yet oh-so-delicious, cups of joe. So, maybe there's hope for this caffeine-fueled empire after all?

There might also be a light at the end of the tunnel with all of those labor disputes. Starbucks recently reached an agreement with the union on a foundational framework for collective bargaining. Progress, people!

So, should you invest in Starbucks? The stock is trading near its 52-week low, and who doesn't love a good bargain, right? On the other hand, is Starbucks able to turn things around?

Let’s examine the bull case and the bear case for Starbucks.

The Bull Case

Starbucks has experienced incredible growth. Just look at their Q1 consolidated net revenues, which soared to a record-breaking $9.4 billion. That's enough money to buy a lifetime supply of Frappuccinos.

And the best part? They expect revenue to grow even more, with a projected increase of 7% to 10% this year.

The stock also offers a decent dividend yield of 2.49%. That means you can sip your coffee while your investment pays you back in cold, hard cash. And if that's not enough to get you excited, their dividend has been slowly growing throughout the years.

Now, let's talk about the price-to-earnings ratio, a key indicator of stock value. It's around 25 for Starbucks, which is pretty decent.

Have you heard about Starbucks' spring menu? They've bloomed with their first-ever lavender drinks. With innovative offerings like this, Starbucks can find new ways to keep their customers hooked and their revenue flowing.

But it's not just about the drinks. Starbucks is also shifting more of its marketing budget to social media to reach Gen Zers and millennials. They're tapping into the power of Instagram and TikTok to create buzz and build a loyal following. 

With record-breaking revenues, a growing dividend, and a marketing strategy that's as fresh as their coffee beans, Starbucks is brewing success in every cup.

The Bear Case

Hold on to your pumpkin spice latte because I've got some bearish news for you. First off, let's talk about their operating expenses. In the past year alone, Starbucks saw an 8.37% increase in operating expenses. This has held the stock back, partly explaining why it has lagged behind the broader market.

In the most recent quarter, the earnings and revenue from Starbucks were lower than expected.

Starbucks is facing fierce competition in its main market the United States, with rivals such as Dutch Bros (NYSE: BROS). Plus, fast food players are now serving breakfast, which means Starbucks is battling some serious morning munchies competition.

China, the second largest market for Starbucks, is experiencing some economic woes. There was a 9% decline in average ticket prices in China. And to top it off, comp growth (a key retail metric) in China is projected to be the worst for Starbucks worldwide in 2024.

In the Middle East, there have been boycotts of the Starbucks brand over the recent war. 

With rising expenses, underperformance, fierce competition, economic troubles in China, and Middle East headwinds, it is clear that Starbucks has problems.

Comparing the Field

Starbucks’ stock price is $91.39 (-2.43% in 2024).

And Starbucks’ competitors:

Dutch Bros’ stock price is $33.00 (+6.25% in 2024).

McDonald's stock price is $281.95 (-5.08% in 2024).

Yum! Brands’ stock price is $138.65 (+7.46% in 2024).

Restaurant Brands International's stock price is $79.00 (+1.94% in 2024).

From the Expert Analysts

According to the 25 Wall Street analysts documented by TipRanks, Starbucks has a price target of $107.30, which is higher than the current price. Among those 25 Wall Street analysts, 10 listed the stock as a “buy,” 0 listed it as a “sell,” and 15 listed the stock as a “hold.”

According to analysts on Benzinga, Starbucks’ stock is listed as “neutral.” One bullish analyst predicts that the price could jump to $150 and a bearish analyst predicts that it could be as low as $86. The consensus price target among the analysts is $103.20.

Machine Learning Prediction

The blue line is Starbucks’ price in the past year and the red line represents a machine-learning prediction from Early Bird for the next three months. The machine learning model is from Google algorithms and was trained on public stock data that Early Bird collected.

This machine learning model predicts Starbucks will jump around before dropping slightly to $90 by June.

Early Bird’s Flight Plan

If you prefer to invest in value stocks and/or dividend stocks with long-term aspirations, the price of Starbucks presents an opportunity to buy.

However, if you prefer growth stocks and short-term trades, then Starbucks might be too risky due to volatility and headwinds.

Thank you for reading!

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_{The contents of Early Bird are intended for informational and entertainment purposes only. They do not constitute trade or investment recommendations and they are not financial or legal advice. Readers are encouraged to consult licensed professionals for personalized guidance regarding their financial or legal situations.}