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Is Starbuck’s Rally at Risk?

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Starbucks Inc. (SBUX​) moved lower after reported in-line earnings of $0.45 per share and revenue that rose 6% to $5.29 billion – but missed estimates by $120 million. While lighter than expected comparable sales led the stock lower, the company noted that late-quarter momentum that could improve matters next quarter. Analysts seemed to agree and remain largely bullish on the company over the long-term.

Those bearish on the stock argue that the company has been facing declining comparable sales for several quarters and price increases are becoming less effective at offsetting the trends. The company could be facing increasing competition from local coffee and espresso shops, which could limit its pricing power in future quarters. The upshot is that new drinks, store models, and offerings could help offset some of these concerns for the time being.

From a technical perspective, the stock moved sharply lower from its R2 resistance at $61.62 and stands just above its trend line support at around $60.00. Traders should watch for a breakdown from these levels towards its lower trend line and pivot point at $57.05 or a rebound to retest its R2 support at $61.62. Looking at technical indicators, the RSI still appears overbought at 61.00, but the MACD​ remains in a bullish uptrend.

On a fundamental level, the company is likely to experience a rebound next quarter given the positive momentum, but investors will be keeping a close eye on same-store sales. The market will also be paying closer attention to its expansion in China and new initiatives designed to attract a broader range of customers that spend more at its stores. That said, the stock’s current earnings multiple could require solid gains in order to justify.

Charts courtesy of StockCharts.com. Author holds no positions in stocks mentioned except through passively managed index funds.

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