Starbucks Corporation (SBUX) is better positioned than most rivals to survive and prosper once the coronavirus pandemic runs its course. Many stores in China have reopened, giving the company a steady income stream while U.S. and European stores without drive-thru or delivery capacity have closed. It's likely that revenues at coffee houses that are still open have taken a big hit due to dependence on rush-hour traffic that has trickled to a standstill in many cities and towns.
The company reported over $3.5 billion in net income for the fiscal year ending Sept. 30, 2019 (See also: How Starbucks Makes Money.) Nearly 70% of outstanding shares are owned by big institutions that shouldn't need to sell in order to raise cash during the crisis. In addition, the stock is still trading above the 2018 low, highlighting resilience that is rare for the vast majority struggling restaurants and coffee houses.
The misfortune of rivals will also help Starbucks in coming quarters, with the likelihood that small competitors will go bankrupt. However, the sword can run both ways because regional operators like Dutch Brothers have used drive-through exclusively for years, allowing them to build income and customer loyalty during the crisis. It's possible that market share for these companies will increase permanently as consumers discover delicious blends at lower prices.
SBUX Long-Term Chart (1992 – 2020)
The company came public at a split-adjusted $0.34 in June 1992 and entered an immediate uptrend that held within the boundaries of a rising channel into 2001, when the uptrend topped out at $6.41. The stock split five times during the ascent, which attracted a large population of momentum buyers and short sellers. It bottomed out and turned higher after the Sept. 11 attacks, posting a new high in the third quarter of 2003.
The rally booked dramatic gains during the mid-decade bull market, lifting to $19.94 in the second quarter of 2006. It broke down from a double top a few months later, entering a steep downtrend that accelerated during the 2008 economic collapse. The decline ended in November within 16 cents of the 2003 low, giving way to a recovery wave that completed a round trip into the prior high in 2011.
A 2012 breakout attracted strong buying interest, generating steady upside into the 2015 high at $63.84. Starbucks stock underperformed for the next three years, carving a narrow trading range while the majority of the stock universe hit bull market highs. It finally cleared horizontal resistance in November 2018, entering a strong advance that posted an all-time high at $99.72 in July 2019. The subsequent pullback completed another double top breakdown in February 2020, triggering a decline into a 20-month low.
SBUX Short-Term Outlook
The bounce into April has lifted into new resistance at the failed 2019 breakout. This is no-man's land because it's also trading above the .786 Fibonacci rally retracement, which marks the final support level prior to a 100% retracement. This rock and a hard place set-up raises the potential for a compressed trading range between the mid-$60s and upper $50s, with a breakout at either end having the potential to trigger a sustained trend.
Finally, the monthly stochastic oscillator entered a sell cycle from the overbought zone in September 2019, well before the outbreak, and still hasn't reached the oversold zone. This reveals a strong advantage for bears in the coming weeks, raising the odds that the stock will test the 2018 and March 2020 lows between $45 and $50. In turn, a bounce at that level could initiate the next swing in a complex topping pattern that keeps the stock range bound well into 2021.
The Bottom Line
Starbucks has a sizable cash hoard that should ensure its survival if the pandemic keeps stores closed through the second quarter. With the potential demise of key rivals, the company could bounce back in a commanding market position after the pandemic runs it course.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.