Last time I took a look at Starbucks was toward the later half of August and I was bearish on the stock then. In an article I wrote, I asked if Starbucks (SBUX) was over priced. With the downgrade in earnings expectations I saw no reason to be bullish on the stock yet. As time progressed, the stock has revealed a complete filling of the gap from a reactionary move down and now follows its original path down.
Technically Speaking
After the huge disappointment in July that resulted in a reactionary dip, Starbucks recovered only to follow its continued journey down from late spring into summer. Since it moved back up to its resistance level, it has been following the line down. It is hard to see anything but this continued steady bearish trend because of the large dip it took. Both the RSI & MACD cannot reveal anything new because of it. It looks like the stock may not follow a gradual move down with the lower Bollinger Band. From all observations, the stock is continuing a bearish trend.
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Growth to Combat Sluggish Sales
Starbucks cut its fourth quarter profit forecast last summer because of slowing U.S. growth and the recession in Europe. With just under 11,000 stores in the U.S. the CEO is planning a 10% growth in the United States within 5 years. The company has made acquisitions to bolster what it sells to health-minded clientele. It is selling juice, energy drinks, and good food alongside its coffee. Economic struggles have been a thorn in Starbucks' side as it has so many other companies. But the company is far from complacent. China is expected to have 1500 stores by 2015 even though the economy has slowed this year, and it plans on opening new territory in India now.
There is a joint venture between Starbucks Coffee and Tata Global beverages. Tata is an Indian multi-national non alcoholic beverage company and is the second largest manufacturer and distributor of tea in the world-as well as a major coffee producer. The Indian stores will also be the first Starbucks location to feature espresso sourced and roasted locally from India through the coffee sourcing and roasting agreement with Tata Coffee Limited. Espresso sourced from India will be a hallmark feature of all Starbucks stores in the market.
Verismo Nails Green Mountain's Coffin
Starbucks released its single brewer "Verismo" brand that is expected to cater to a more upscale clientele than Green Mountain's Keurig brewers. Even though Starbucks brass calls Green Mountain (GMCR) a 'partner' because it will produce Starbucks k-cups, its stock dropped when Starbucks announced it was entering the single cup coffee market. Starbucks CEO Howard Schultz called this segment:
"The fastest-growing segment of the coffee market is the multibillion-dollar premium single-cup segment."
Is Starbucks going to be coming out with better earnings this quarter? Mr. Schultz believes the worst might be over for the company in Europe as he thinks the new Starbucks plan there is taking hold. He sees more people going to Starbucks than ever before! But I am not convinced that Starbucks' journey into bearish territory is over yet. With market sentiment turning more bearish, I believe we could see the company continue down, or just remain in a prolonged trading zone because of events that are yet to be seen unfolding in Europe and perhaps China.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
