While cocoa futures dominate the headlines, coffee prices are quietly reaching new heights in the first half of 2024. Blame it on El Nino’s influence, with heavy rains hitting Brazil and drought conditions in Vietnam, driving up prices for both arabica and robusta coffee futures. Amidst this commodity surge, Starbucks (NASDAQ:SBUX) finds itself freshly endorsed on Wells Fargo’s Q2 tactical ideas list, with the brokerage firm expressing confidence with an “Overweight” rating. Analysts foresee potential positivity for Starbucks, especially with expected price hikes in California later this year.
Despite recent market underperformance, the coffee giant’s stock has caught Wells Fargo’s attention, suggesting a potential turnaround. With economic indicators hinting at a robust U.S. consumer, investors are pondering the prospect of investing in SBUX shares. Let’s delve deeper into Starbucks’ current status.
Starbucks Stock Dips Amidst Market Turbulence
Starbucks Corporation (NASDAQ:SBUX), valued at $98 billion by market capitalization, boasts a global presence renowned for its coffee culture and signature offerings. However, the company has faced challenges this year, reflected in its stock price decline. Year-to-date, SBUX has dropped by 9.5%, while over the past 52 weeks, it has suffered a 17.2% decrease, in stark contrast to the S&P 500 Index’s 26.6% gain. Additionally, SBUX recently hit a new 52-week low.
Despite market volatility, Starbucks continues its tradition of rewarding shareholders with consistent dividend payouts. With a quarterly dividend of $0.57, SBUX yields 2.63%, backed by a history of 13 years of dividend growth and a solid payout ratio of 59%.
The recent downturn in SBUX has resulted in the stock trading below its historical valuation multiples. With a forward price/sales ratio of 2.53 and a forward price/earnings ratio of 21.43, Starbucks appears reasonably valued compared to its 5-year average multiples of 3.61 and 35.87, respectively.
Starbucks Faces Earnings Strain
Starbucks reported fiscal year 2024’s first-quarter financial results below analysts’ expectations. Q1 earnings per share (EPS) amounted to $0.90, breaking the company’s streak of surpassing Wall Street’s quarterly earnings estimates. Likewise, Q1 revenue, totaling $9.4 billion, fell short of the forecasted $9.6 billion, with global comparable store sales increasing by a lower-than-expected 5%.
Despite these challenges, North American operating margin expanded to 21.4%, attributed to enhanced efficiencies. Following the subdued fiscal Q1 results, Starbucks revised its full-year revenue and same-store sales growth forecasts. Analysts have adjusted Starbucks earnings forecasts downward over 25 times ahead of the next earnings report, indicating minimal optimism.
Analysts Remain Cautiously Optimistic
Analysts remain cautiously optimistic about Starbucks’ future, with a consensus of “moderate buy” among 24 analysts. Among them, 10 advocate a “strong buy,” one suggests a “moderate buy,” and 13 recommend a “hold.” The mean target price for Starbucks stands at $106.86, suggesting a potential upside of about 23%.
Analyst Zachary Fadem of Wells Fargo believes that Starbucks’ revised guidance could work in its favor. With low expectations from Wall Street for the rest of the year, Fadem sees the upcoming earnings report as a potential turning point that could clarify Starbucks’ path ahead.
Conclusion
For investors seeking dividend opportunities at discounted prices, Starbucks may warrant consideration, given market expectations and potential rebound prospects. However, with the stock hitting new 52-week lows recently, investors might opt to await signs of recovery before accumulating shares.
Featured Image: Megapixl
Author Faith Yakubu 
