Starbucks Corporation (SBUX) Is a Trending Stock: Facts to Know Before Betting on It

Starbucks (SBUX) is trending on Zacks.com, but faces headwinds according to their analysis. The stock has underperformed the S&P 500 and its industry over the past month, and faces significant downward revisions in earnings estimates for the current quarter and fiscal year, leading to a Zacks Rank #4 (Sell) rating; however, revenue is projected to grow, with a 2.2% increase expected for the current quarter and 6.2% for the next fiscal year, while earnings are expected to grow 20.1% next fiscal year.

Analysis

Starbucks Corporation (SBUX) has recently garnered significant investor attention, yet an examination of its near-term prospects reveals notable headwinds. Over the past month, SBUX shares returned +4.7%, underperforming both the Zacks S&P 500 composite's +12.7% gain and its own Zacks Retail - Restaurants industry, which rose 5.5%. A critical concern stems from substantial downward revisions to earnings estimates. For the current quarter, earnings are projected at $0.68 per share, a steep 26.9% year-over-year decline, with the Zacks Consensus Estimate falling by 22.3% in the last 30 days. Similarly, the current fiscal year's consensus earnings estimate of $2.57 signifies a 22.4% decrease from the prior year, having been revised downward by 12.3% recently. While the next fiscal year anticipates a 20.1% earnings rebound to $3.08 per share, this estimate has also seen a negative revision of 13.4% over the past month. These negative revisions have culminated in a Zacks Rank #4 (Sell). In contrast to the earnings pressure, revenue forecasts show modest growth: +2.2% year-over-year for the current quarter to $9.31 billion, +2.1% for the current fiscal year to $36.94 billion, and +6.2% for the next fiscal year to $39.23 billion. The last reported quarter saw revenues of $8.76 billion (+2.3% YoY), slightly missing consensus by 0.31%, while EPS of $0.41 was a significant 16.33% miss and down from $0.68 a year ago. Historically, SBUX has surpassed EPS estimates only once in the last four quarters. Valuation also appears stretched, with a Zacks Value Style Score of D, indicating it trades at a premium relative to its peers. The overall sentiment surrounding the stock is negative, with a cautious tone.

Key Decisions for Investors

• Investors should exercise caution given the significant downward revisions in earnings estimates for the current quarter and fiscal year, coupled with the stock's recent underperformance and a Zacks Rank #4 (Sell), signaling potential for continued near-term weakness.
• Monitor revenue growth trends and upcoming earnings reports closely for any stabilization or improvement in earnings per share, particularly in light of the projected 20.1% EPS growth for the next fiscal year, which could indicate a longer-term recovery.
• Given the stock's premium valuation indicated by a Zacks Value Style Score of D, investors should assess whether the current price adequately reflects the prevailing earnings headwinds and surprise history before committing new capital.