Starbucks Corporation (NASDAQ:SBUX) stock has been declining since the start of 2022. The stock started the year at a price of $117 but is now trading at $91, after touching a low of $79 in mid-March.
The stock decline accelerated in early February, after an adjusted EPS in Q1 of $0.72, missed estimates of $0.79. The EPS was still higher than $0.61 reported in the prior year. The missed earnings reflected growing inflation and Covid-19 induced costs.
Starbucks’ missed earnings got the attention of Morgan Stanley, with the bank’s strategists commenting that the cost pressures will persist in the second quarter. The bank lowered Starbucks EPS estimate for the second quarter to $0.60, from $0.71.
While the stock’s price has by now reflected the downgrade by Morgan Stanley and the Covid-19 situation improved, Starbucks is not yet out of the woods. Inflationary pressures continue to run high while the prices of commodities have been worsened by the war in Ukraine. As a result, Starbucks will continue to face headwinds ahead. Nonetheless, the stock is showing resilience amid the macroeconomic turmoil.
SBUX jumps from a bottom of $82
Source – TradingView
Technically, SBUX touched a support of $82 earlier this month, coinciding with the oversold conditions. At the current price, the stock has broken above a descending trendline and looking up. The 20-day moving average has joined the support for the first time since early January, reinforcing a short-to-medium term bullish move. The stock rise also coincides with an expected temporary return of former CEO Howard Schultz, who replaces current CEO Kevin Johnson.
Starbucks is facing an uncertain macroeconomic environment which caused a fall in the stock. Nonetheless, we believe the stock is oversold and investors should consider adding positions at the current level. Investors can ride up to the $98 level, although reaching prior tops would be a challenge.
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