Starbucks Corp. (SBUX) shareholders cheered news that founder Howard Schultz would return as interim CEO but had second thoughts after his first official act on Monday was to suspend the highly popular stock repurchase plan, in order to “invest more into people and stores”. The stock fell 3.7% after the news, marking a significant failure at 50-day moving average resistance just above 90 while exposing another decline into March’s seven-month low at 78.92.
Unionization Could Now Accelerate
Eight Starbucks locations have now voted to unionize, with the latest in Arizona in March. Workers rights advocates cheered the news but investors are rightfully worried that already razor-thin margins will contract even further, reducing profitability. The buyback suspension eliminates one major defense against lower quarterly earnings, inducing many shareholders to dump positions and look for better investment opportunities.
Chairperson Mellody Hobson stood up for Schultz’s interim appointment in March, admitting that Starbucks “made some mistakes” in dealing with organizers. As she noted, “We are also negotiating in good faith, and we want a constructive relationship with the union. When you think about, again, why we’re leaning on Howard in this moment, it’s that connection with our people where we think he’s singularly capable of engaging with our people in a way that will make a difference”. Sadly, ‘that difference’ may not benefit long-term investors.
Wall Street and Technical Outlook
Wall Street has been painfully slow in computing the bearish impact of Starbucks unionization on quarterly profits, maintaining a lofty ‘Overweight’ consensus based upon 16 ‘Buy’, 3 ‘Overweight’, 15 ‘Hold’, and 0 ‘Sell’ recommendations. This disconnect with Main Street reality is even more prominent in current price targets, which range from a low of $95 to a Street-high $135, because the stock is set to open Tuesday’s session more than $8 below the low target.
Starbucks broke out above the 2019 peak at 99.72 in November 2020, entering an uptrend that hit an all-time high at 126.32 in July 2021. The subsequent decline completed a head and shoulders breakdown in January 2022 and reached the measured move target near 80 in March, ahead of an uptick that’s now reversed at the 50-day moving average. Accumulation has dropped to the lowest low since January 2019, when the stock was trading in the 60s, indicating the downtrend remains fully intact.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire
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