The Real Story on Starbucks’ Earnings – And Two Moves to Make Now

Starbucks (SBUX) has sold off more than 6% after Tuesday’s earnings release where the company beat second-quarter forecasts but disappointed with conservative forward guidance.

But what I find more interesting about SBUX are the times the stock HASN’T sold off.

SBUX didn’t sell off when all the drama over unionization flared up again this spring. This stuff was a major overhang for SBUX stock starting last spring, when former CEO Howard Schultz returned to manage the situation.

And SBUX didn’t sell off when it created olive-oil-infused coffee drinks – to very mixed reviews. (All I can say about these “Oleato” drinks, as someone who hasn’t had coffee in over a year, is that I’m not about to start with these.)

Starbucks shares just kept climbing, up 38% in the past year… while all the major stock indexes are flat to down.

But it was that overly cautious outlook that finally spilled the shares. In their Tuesday call with investors, Starbucks execs reiterated their earlier 2023 guidance. That wasn’t good enough. Investors wanted a boost.

Label me unconcerned.

A cadre of sell-siders believe the company was playing it safe – and that investors will be surprised by sales and profits in the quarters to come.

And Starbucks is a very resilient brand: It has emerged as a staple among American consumers. While hardly anything else resembling a coffee store survived COVID, Starbucks emerged transformed.

It’s a great business, and Big Money loves it: We’ve seen six Big Money buy signals (green bars above) in just the past 10 trading days. SBUX also hasn’t had any Big Money exits since March, as you can see in the chart above (red bars).

In fact, SBUX appeared Tuesday on my elite Top 20 list – the highest scoring stocks in my Quantum Edge systemthat I provide to institutions and hedge funds.

Let’s make sense of these disparate views, look past the “noise” surrounding Starbucks, and discover two moves you can make following this latest earnings report.

My Quantum Edge Report on SBUX

Starbucks checks a lot of boxes for the  proprietary stock-picking system I use for my clients – and in my services like Quantum Edge Trader.

Here’s a few of them, from the Fundamental side of my Quantum Edge analysis:

From an earnings-per-share (EPS) point of view, the company looks powerful – with estimated 85.7% growth over the next three years.

On a quarterly basis, Starbucks has been turning in roughly $8.5 billion in revenue and profits around 75- to 85 cents per share. Looking back a bit further to 2019, that’s about what we were seeing for EPS before the pandemic. But at today’s $8.5 billion level, quarterly sales are up substantially from the $7 billion we saw in those pre-COVID days.

How did Starbucks pull this off?

New Starbucks CEO Laxman Narasimhan spotlighted this “x-factor” in Tuesday’s earnings call, telling folks that mobile orders, drive-thru, and delivery accounted for 74% of second-quarter revenue in company-owned locations (versus licensing).

The company didn’t just adapt to the changing times … it capitalized on them.

The Starbucks logo is still everywhere you look… But instead of a store on every corner, you might be more likely to see Starbucks in a DoorDasher’s hand, on your grocery-store shelves, or at your local Target or Walmart.

And any new stores are more likely to be drive-thru: 90% of them, according to the “Starbucks Reinvention Plan.”

When we add this all together – the Fundamental Score, the Technical Score that’s based on momentum, volume and relative strength indicators, and our proprietary Big Money signals – you’re looking at a company and a stock that’s super-solid, and poised for growth…

Here are Those Two Possible Moves I Promised

You’ve got two options here – and either will work.

The first is to wait for a slight technical improvement before you grab some Starbucks shares.

Normally in Quantum Edge Trader and my other services, we would take scores in the 70-90s range as our “buy” signal. But with the Quantum score of 67.2, there’s no reason to sell SBUX if you already own it.

After all, the Big Money isn’t cutting and running.

The second option is to use Starbucks’ quarterly report as a proxy for the American consumer – and an indicator of where to invest.

After all, the cliché about Starbucks nowadays is: “When you need to save money, you should stop buying Starbucks.”

With Starbucks turning in $8 billion in revenue, quarter after quarter – even approaching $9 billion in the latest report – consumers clearly haven’t stopped buying their Starbucks.

You could use this as a cue to buy other Discretionary stocks with already impressive metrics.

Lululemon (LULU) is a great example, with its Technical score of 79.4% – and hard-to-beat Fundamentals of 83.3%:

When a retailer that sells $100 leggings is thriving – with double-digit growth in sales as well as earnings – you can bet that plenty of consumers are doing just fine.

In fact, Discretionary stocks are the strongest now, as I’ve been emphasizing here in Power Trends. Tech stocks, too.

And when we see that strength broaden out to more sectors, we’ll know that the bull market I’m calling for is getting traction – and is off to the races.

Talk soon,

Jason Bodner
Editor, Jason Bodner’s Power Trends

P.S. I did just recommend a new stock in Quantum Edge Trader this week.

It’s a leader in its industry, and unlike many companies this earnings season, it raised expectations for the year.

The stock has pulled back off recent 52-week highs, giving us a good entry point.

Click here to learn more about my system and how to get all of the details on my latest recommendation.

Disclosure: On the date of publication, Jason Bodner held a position in Starbucks (SBUX), mentioned in this article.