Starbucks has hit a 52-week low amid unionization and COVID headwinds. Is it time to buy?
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Starbucks (NASDAQ:SBUX) stock hit a 52-week low this week, despite the coffee shop chain reporting that consumer demand is so hot, itâs having a hard time keeping up. The strong underlying fundamentals have been undercut by headwinds ranging from unionization in the U.S. to ongoing COVID restrictions in China.
Is now the time to buy?
Starbucks Drops on Unions, COVID
While market turbulence fueled by escalating inflation and the Ukraine conflict has pulled down many of the marketâs most popular stocks, Starbucks has been particularly hard hit. SBUX has tumbled about 40% since the beginning of the year. In comparison, the S&P 500 index has declined 15%.
Investors have moved to the sidelines over concerns that ranged from the impact of the COVID-19 lockdown in China to worker efforts to unionize in the U.S. As a result, Starbucks shares reached $69.96 per share on Wednesday, a new 52-week low. Thursday's pre-market action showed signs of further weakness, suggesting that the stock would likely extend that low.
The stock did get a boost on May 4 after it released a relatively positive Q2 earnings report that showed U.S. comparable store sales jumped 12% over the previous yearâs quarter. This strength in the U.S. offset a decline in Chinese, where pandemic-related shutdowns cut into sales.
However, the company also dropped its fiscal 2022 guidance due to uncertainty over the duration of the Chinese lockdowns and rising inflation.
Still, investors appeared to be particularly heartened by comments made by interim Starbucks CEO Howard Schultz on the companyâs quarterly conference call that demand for its coffee products was so high it was having a hard time keeping up. He added that the company planned to make significant investments in its stores and digital capabilities to capitalize on the increase in demand.
Schultz, who recently returned to the CEO role after a several year hiatus, also said Starbucks planned to raise wages and enhance benefits for workers at non-union stores. The pay hikes and improved benefits, however, would not be immediately seen at union stores due to certain legal restrictions.
âAt stores where workers have union representation, federal law requires good faith bargaining over wages, benefits and working conditions which prohibits Starbucks from making or announcing unilateral changes,â Schultz said.
Two days later, Starbucks was hit with a sweeping complaint alleging the company was in violation of the National Labor Relations Act in its dealings with worker efforts to unionize. The complaint arose from allegations made by workers at a Starbucks store in Buffalo, NY, which eventually became the companyâs first store to unionize. Workers at the Buffalo store voted in favor of unionization last December.
Is SBUX a Buy?
Despite the ongoing pandemic and unionization push, Wall Street analysts still rate Starbucks a Buy, on average. As of Wednesday, 10 rated the company a Strong Buy, seven a Buy and 17 a Hold. None rated of the analysts tracked by Seeking Alpha rated it a Sell. SA authors, on average, also have a buy rating on the stock.
Seeking Alpha's Quant Ratings, meanwhile, sees the stock as a Hold. While the coffee chain earned an A for profitability, it also received a C+ for growth, C for momentum, and C- for revisions and valuation.
Looking at individual analyst opinions, MKM Partners analysts said in a note released on May 4 that they remained âconstructiveâ about Starbuckâs long-term prospects and were maintaining their Buy rating.
âChallenges persist across the global marketplace, and while some may veer to the side, Starbucks is clearly steering into the skid, by layering on additional investments to drive its intermediate-to-longer-term growth,â MKM analysts wrote.
Wedbush analysts, meanwhile, said in their May 4 note that they âremained sidelined due to limited near-to-medium-term China and margin visibility.â The firm kept its Neutral rating.
Piper Sandler analysts appeared to be a bit more upbeat in their note dated May 4 while maintaining their Neutral rating.
âDespite reduced near-term visibility around brand trends, we do believe the underlying demand for and the long-term strength of the Starbucks brand remains strong,â the Piper analysts wrote.
For a more bullish look at Starbucks, check out SA contributor Keyanoush Razavidinaniâs âStarbucks is Historically Undervaluedâ. For a more bearish take, read SA contributor Tom Lloydâs âStarbucks: High Volume, Technical Buy Signalâ.