Will Starbucks’ Stock Rebound 50% Post Coronovirus?

by Trefis Team
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Starbucks‘ (NASDAQ: SBUX) stock declined from about $75 on March 6th to $65 as of yesterday, March 24th – a 14% drop (vs. an 18% decline in the S&P 500 during the same period). The World Health Organization (WHO) had declared a global health emergency at the end of January in light of the coronavirus spread. SBUX stock has lost 23% from its closing price above $84 on Friday, January 31st (vs. about 27% decline in the S&P 500).

Looking back at the 2008 financial crisis, we see SBUX stock declined from levels of around $11 in October 2007 (the pre-crisis peak) to below $4 in March 2009 (as the markets bottomed out) – implying SBUX stock lost as much as 65% from its approximate pre-crisis peak. This marked a higher drop than the broader S&P, which fell by as much as 51%. However, SBUX recovered strongly post the 2008 crisis, to levels of almost $10 in early 2010, rising by 152% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Starbucks’ stock recover similarly from the coronavirus spread? We compare the performance of Starbucks vis-à-vis the S&P 500 in our interactive dashboard analysis, ‘2007-08 vs. 2020 Crisis Comparison: How Did Starbucks Stock Fare Compared with S&P 500?‘ And keeping in mind the 23% decline this time around, a 50% jump in stock price is definitely on the cards once the fears around the current outbreak are abated.

 

On Monday, March 9th, the stock market entered into a phase of extreme volatility, with two significant sell-offs on Monday and Thursday being separated by days of partial recoveries. Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

SBUX stock has suffered as states and countries are on lockdown. People are not meeting friends and colleagues or going out with family for breakfast, drinks, lunch, or dinner. Restaurants and food outlets are operating in the take-out-only mode, and many are closed. Besides lower demand, the supply chain across the world is suffering, which will also weigh on sales. We believe Starbucks’ Q2 and Q3 results will confirm this reality with a drop in both International and Americas revenues.

Starbucks’ stock has the potential to bounce from its March 24th $65 price, back to $95 levels seen pre-Coronavirus crisis with a nearly 50% return. Its timing hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyses expected recovery time-frames and possible spread. If signs of coronavirus containment aren’t clear by the last week of April when Q2 earnings are expected, Starbucks’ stock, along with the broader market, is likely going to see a continued drop when results confirm palpable reality.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the outbreak’s impact on a diverse set of Starbucks’ multinational peers including McDonald and Chipotle. The complete set of coronavirus impact and timing analyses is available here.

 

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