28 April 2020

Starbucks Stock is Piping Hot Ahead of Q2 Results

Tags

What’s happening: Starbucks Corp is scheduled to report its second-quarter results after the closing bell on Tuesday, April 28.

What happened: Starbucks has had to close most of its stores in China, the US and other countries due to the coronavirus outbreak. This is likely to have severely hurt the Seattle, Washington-based company’s quarterly profits and sales.

Despite this, investor sentiment is positive heading into the second quarter results. In fact, shares of Starbucks climbed almost 3% yesterday to close trading at $77.74. There are several reasons for the investor optimism.

Expectations for the quarter: The world’s largest coffee chain is expected to report a decline in sales, but the hit to profits is likely to be much more severe.

  • The consensus revenue estimate stands at $5.91 billion, representing a 6.2% decline from the same quarter last year.
  • The company is expected to report earnings of 31 cents per share, down 48% from the year-ago quarter.

Why it matters: With the US becoming the new epicenter of the COVID-19 pandemic, Starbucks had indicated that its second-quarter earnings could plummet 47%. The company also scrapped its outlook for the full year and temporarily suspended its stock repurchase program. Management also warned that the financial impact from the virus will likely be felt till the final quarter of the fiscal year.

The company cut its Chinese revenue estimates by a whopping $400 million, following a 50% decline in comp sales in the second quarter.

On a positive note, although Starbucks has closed its dine-in areas, it has shifted its operations to drive-thru and delivery, which limits social contact. The coffee giant has also reopened around 90% of its stores in China, giving hope of a gradual improvement in its results.

Moreover, Starbucks ended the second quarter with cash of around $2.5 billion. The company lifted its short-term borrowing capacity by $3.5 billion to preserve liquidity for the future.

How the shares have performed so far: Investors seem mostly positive about Starbucks, sending its shares higher by 3.2% over the past five days. Although the stock has lost around 12% over the past three months, it has recently found favour, gaining over 17% over the past month.

What to watch: With most of the US economy under a lockdown for around a month, investors are hoping for Starbucks to navigate the current crisis with its drive-thru services and home deliveries through its Uber Eats partnership. The company’s prospects remain uncertain, with some consumers expected to stay away from restaurants due to the virus fears even at the reopened stores. However, the company is considered a good recovery option among restaurant stocks, given its strong fundamental business model. Investors also expect to hear from the company about its progress in China and current status in the US.

The Markets Today

     

European stocks will be in focus today, with central bank meetings scheduled for later in the week.

Context: European stocks closed higher on Monday, following announcements of the reopening of various economies. Investors were also optimistic ahead of the ECB (European Central Bank) monetary policy meeting scheduled for Thursday.

Details: Italy’s Prime Minister Giuseppe Conte announced that the country will begin easing its lockdown measures from May 4. On the other hand, France is expected to disclose its exit plans today. On the other side of the pond, New York Governor Andrew Cuomo also said that the state could start reopening from mid-May.

UK Prime Minister Boris Johnson returned to work after being in hospital for coronavirus treatment. The country’s PM has not yet announced any plans of easing the lockdown measures.

Investors shrugged off France reporting the highest rise in unemployment since the beginning of 1996, with unemployment climbing 243,000 to 3.489 million in March.

The pan-European Stoxx 600 index climbed 1.77%, with all sectors closing in positive territory. The auto sector was the leading performer, adding 4.6% in the previous session. The FTSE 100 rose 1.64%, while the German 30 index closed higher by 3.13%.

Bayer’s shares spiked around 6% on Monday after the German pharmaceutical company reported growth in both sales and earnings in the first quarter, driven by the coronavirus pandemic. Deutsche Bank’s stock jumped 12% after the German lender said it expects to report strong results for the first quarter.

What to watch: Markets will be keeping a close eye on the ECB meeting scheduled for Thursday, hoping of additional stimulus measures. Investors will continue to focus on daily COVID-19 numbers. Spain has so far confirmed over 229,420 coronavirus cases with 23,520 deaths. The number of cases in Italy has crossed 199,410 with 26,970 fatalities.

Investors await some economic reports from the European nations, including France's consumer confidence, Spain's unemployment and UK’s CBI distributive trades. France's consumer confidence indicator is expected to decline to 83 in April, from 103 in March. Spain's unemployment rate is expected to rise to 15.6% in the first quarter, from 13.8% in the previous quarter.

Other Markets: US indices closed higher on Monday, with the Dow, S&P 500 and Nasdaq 100 up by 1.51%, 1.47% and 1.11%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Indonesia’s loan growth, Mexico’s balance of trade, Brazil’s loan growth, Saudi Arabia’s bank lending growth and money supply M3, Russia’s GDP, Argentina’s economic activity index as well as the US wholesale inventories, goods trade balance, Redbook index, S&P Case-Shiller home price index, CB consumer confidence and Richmond Fed manufacturing index.

 

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.