Bear of the Day: Starbucks (SBUX)

Starbucks operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company offers roasted whole beans, coffee and tea beverages, single-serve products, and various food items such as pastries and breakfast sandwiches.The coffee retailer provides its services under the Starbucks, Seattle’s Best Coffee, Evolution Fresh, Ethos, and Teavana brands. Founded in 1971 and based in Seattle, Washington, Starbucks maintains a presence in nearly 90 markets worldwide.Starbucks faces several notable headwinds. The stock is underperforming amid decreased global comparable store sales along with higher operational expenses. Domestic market softness remains evident, triggered by a 4% decrease in comparable transactions during the company’s fiscal second quarter. New competition also represents a significant and ongoing threat to its core business.The Zacks RundownA Zacks Rank #5 (Strong Sell) stock, Starbucks is part of the Zacks Retail – Restaurants industry, which currently ranks in the bottom 42% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months, just as it has over the past few months:Image Source: Zacks Investment ResearchAlso note that stocks in this group remain relatively overvalued:Image Source: Zacks Investment ResearchStocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.SBUX stock has been severely underperforming the market off the April lows. The stock has failed to show any real momentum and represents a compelling short opportunity as we head further into 2025.Recent Earnings Misses and Deteriorating OutlookStarbucks SBUX has fallen short of earnings estimates in three of the past six quarters. Back in April, the company reported quarterly earnings of 41 cents per share, missing the Zacks Consensus Estimate by a whopping -16.3%.Starbucks posted a trailing four-quarter average earnings miss of -2.95%. Consistently falling short of earnings estimates is a recipe for underperformance, and SBUX is no exception.The coffee retailer has been on the receiving end of negative earnings estimate revisions as of late. Looking at the full year, analysts have slashed estimates by -15.36% in the past 60 days. The fiscal 2025 Zacks Consensus EPS Estimate is now $2.48 per share, reflecting negative growth of -25.1% relative to last year.Image Source: Zacks Investment ResearchFalling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.Let’s Get TechnicalAs we can see below, SBUX stock isn’t showing much in terms of a clear trend. Notice how the stock has met resistance at the 200-day (red line) moving average. It’s important to point out that the 200-day average remains flat as opposed to upward-sloping:Image Source: StockChartsSBUX stock has also experienced what is known as a “death cross,” whereby the stock’s 50-day moving average (blue line) crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen about 20% since February, all while the general market returned to new heights.Final ThoughtsOngoing investments in the “Back to Starbucks” strategy, various restructuring actions and additional labor are pressurizing the margins of the company. Moving forward, the ongoing macro uncertainties and elevated expenses are expected to hurt Starbucks’ growth trends. Our Zacks Style Scores illustrate a deteriorating investment picture for Starbucks, as the company is rated a worst-possible ‘F’ in our overall VGM score. Recent earnings misses and declining future estimates signal more trouble on the horizon.The fact that Starbucks is included in a weak industry group simply adds to the growing list of concerns. Investors will want to steer clear of an overvalued SBUX until the situation shows major signs of improvement.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Starbucks Corporation (SBUX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks