Starbucks Stock Has Limited Downside Amid Strong Pace of Recovery

Starbucks stock price rebounded sharply in the past couple of months after sliding below $60 level in March as the restaurant chain was forced to close its operations around the globe due to the outspread of the virus.

The store reopening has been providing support to the share price gains. It has reopened almost 85% of US stores, while it has resumed 90% of operations in China.

The company says its US comparable sales soared to around 60-65% of prior year numbers while sales rose to 80% of last year level in China.

Although Starbuck is likely to report losses for the third quarter, the chief financial officer says they expect to generate positive free cash flows in the final quarter of this year.

“We would expect that on a free cash flow basis, which is how I talked about this, operating cash flow after CAPEX, that across the month of June that burn goes away and we move back into positive free cash flow in the fourth quarter.”

Its international comparable store sales dropped 10% year over year in the latest quarter due to lockdowns across Asia and Europe.

The market analysts, on the other hand, believe that Starbuck sales have been recovering at a faster than expected pace. Cowen analyst Andrew Charles forecast US same-store sales decline of 44% in the third quarter, compared to the previous prediction for a 65% drop. Charles claim that Starbucks is running ahead of third-quarter estimates in China, and the US.

Credit Rating agency Fitch has dropped Starbucks outlook to Negative amid new debt of $3bn, and the agency forecasts that its adjusted leverage would increase to 7.0x by the end of this year compared to 3.2x in fiscal 2019.