Starbucks Stock Is Down Nearly 30% YTD…But China Holds The Key

Trade SBUX Stock Your Capital Is At Risk
Ollie Martin
Updated: 16 Mar 2022

Key points:

  • Down 28% YTD, SBUX stock rose 6% on Wednesday following Chinese ripples and JPMorgan upgrade
  • As Covid restrictions eventually wind down in china, Starbucks will be well poised
  • The analyst expects an operating profit model of $1.29B, similar to 2019 levels

The markets rejoiced today in a welcomed pledge from the Chinese government to keep markets ‘stable’ amidst uncertainty regarding the conflict in Ukraine. Sending ripples throughout international markets, investor sentiment seems positive today following the global development. Stocks that are heavily reliant on China soared. You might not think of China when you think of Starbucks, but the company’s recent eastern expansion has been critical in the last year, and more important for revenue growth in the coming years. 

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SBUX is currently down just over 28% for 2022, after falling sharply at the beginning of the year. The company has obviously been subject to macro factors like inflationary pressures, supply issues, and Omicron restrictions, and so like many competitors, has been victim to recent selling. Starbucks shares rose by over 6% this morning, helped by both news from China and an important analyst upgrade from JPMorgan, citing the company’s potential in the newly tapped market. 

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Analyst John Ivankoe upgraded the company to Overweight from Neutral, maintaining a price target of $101. With an estimated operating profit model of $1.29B, the same as that in fiscal 2019, Ivankoe believes Starbucks to show very “favorable risk/reward dynamics” given the recent expansion into the world’s number two economy. Currently, the thriving economy is still suffering from intermittent restrictions from a zero-tolerance Covid policy, but as soon as the country finds its footing once again, Starbucks will be poised and ready. 

SBUX might not have had a good start to the year, but akin to the wider market selloff, the company’s favorable risk/reward profile allows for a discounted entry into a company that still has a long runway ahead. On another note, Starbucks President and CEO Kevin Johnson announced his retirement today, with a new CEO expected by later this year. 

 

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