Can Q4 earnings heat up Starbucks’ share price?

Starbucks’ [SBUX] share price wasn’t quick to recover from the market downturn earlier this year. After the stock fell to a low of $55.71 on 18 March, it took six months to trade above its 2020 opening price of $88 again. The coffee giant is set to reveal its fourth-quarter earnings report on 29 October and investors will hope a beat will stir up Starbucks’ share price.

On its best day of trading since its March slump, Starbucks’ share price closed at $90.78 on 12 October. While it marked one of the few occasions that Starbucks closed above its 2020 opening price, it was still 3.3% lower than its 23 January high of $93.75.

As of 27 October’s close of $90.05, Starbucks’ share price had made year-to-date gains of 0.78%, and was trading above both its 50-day and 200-day moving averages of $87.13 and $79.46, respectively.

Building positive momentum

For the quarter ended 28 June, total revenues came in at $4.2bn, which beat the Zacks Equity Research consensus estimate by 2.7%. Despite this better-than-expected figure, revenue still fell 38% from the previous year.

When Starbucks announced its third-quarter earnings on 28 July, it reported a loss of $0.46 per share, which beat Zacks consensus estimates for a loss of $0.61 per share — an earnings surprise of just under 25%.

Kevin Johnson, president and CEO of Starbucks, said the group had reopened the “vast majority” of its stores around the world in a statement alongside the results.

The increased income resulting from higher footfall is likely to help drive a recovery for the business. In fact, Johnson believes that Starbucks is “well-positioned to regain the positive business momentum we had before the [coronavirus] pandemic began”.

Looking ahead to the company’s fourth-quarter earnings announcement, analysts project Starbucks to post earnings of $0.32 per share, a year-over-year decline of 54.3%, according to Zacks. Meanwhile, the consensus estimates suggest that Starbucks will have made $6.07bn for the quarter in revenues, a loss of 10% from the prior-year quarter. Such figures could see Starbucks’ share price dip in the near-term.

A willingness to adapt

How the coffee giant’s online ordering service performs will likely have an effect on Starbucks’ share price when the company releases its fourth-quarter earnings results. In an effort to keep revenue flowing as more people worked from home, Starbucks expanded its online services so that its customers could place orders via their mobile for collection.

Furthermore, the company’s decision to modify its stores to better suit contactless transactions may have helped Starbucks’ share price outlook.

John Zolidis, founder and president of Quo Vadis, believes its ability to adapt its assets to the work-from-home trend is a positive for Starbucks’ share price outlook.

“More specifically, we cite the company’s portfolio adaptation with increased penetration of drive-thrus and its express Starbucks Now format, the company’s leadership in digital engagement and loyalty around Starbucks Rewards and Mobile Order and Pay, and convenience initiatives including kerbside pickup and delivery partnerships,” Zolidis wrote in a note to clients seen by MarketWatch.

“More specifically, we cite the company’s portfolio adaptation with increased penetration of drive-thrus and its express Starbucks Now format, the company’s leadership in digital engagement and loyalty around Starbucks Rewards and Mobile Order and Pay, and convenience initiatives including kerbside pickup and delivery partnerships” - John Zolidis, founder and president of Quo Vadis

For John Ivankoe, an analyst at JPMorgan, the slow recovery in Starbucks’ share price has already been “deeply played”. On 20 October, he reaffirmed a Neutral rating on the stock but raised his price target from $80 to $82, according to The Fly.

Zacks has a consensus Hold rating, and the consensus among the 33 analysts polled by CNN Money was also to Hold. A majority of 18 analysts suggested this rating, while 14 rated the stock a Buy and one an Outperform.

Among 28 analysts offering 12-month share price forecasts on CNN Money, the median target is $90.50, with a high estimate of $108 and a low of $75. The median estimate would represent a 0.5% increase from Starbucks’ share price close on 27 October.