Starbucks stock popped more than 8% on Wednesday in massive volume, 371% above average, on earnings. It was the biggest rise for Starbucks stock since the company last August fired former CEO Laxman Narasimhan.
The coffeehouse chain brought in Brian Niccol as CEO in September to right the struggling company. Niccol has experience fixing an ailing company. He was chairman and CEO at popular fast casual Mexican chain Chipotle Mexican Grill until he took the post at Starbucks. Chipotle struggled after instances of food poisoning years ago but improved greatly during his tenure there.
Better-than-expected earnings for Starbucks also led to a huge jump in the company's Relative Strength (RS) Rating, which shot up from 75 to 87 Thursday. The stock initially continued rising Thursday, topping 110 at one point, the highest price since May 2023.
Starbucks Joins Elite Group As Prospects Improve
The upgraded 87 RS Rating means that watchlist candidate Starbucks outperformed 87% of all stocks over the past year. It's a notable distinction because top-performing stocks tend to have an RS Rating north of 80 as they begin their biggest price moves.
Niccol immediately launched five changes to make Starbucks stores more user-friendly, According to Newser. They were free oat milk (there was a surcharge for nondairy), ceramic mugs and a streamlined menu. Also, carafes of milk and cream returned to the restaurants' counters and he announced digital overhead menus are coming, to make options clearer.
Earnings fell 23% to 69 cents per share last quarter, up from a 25% drop the prior report and better than the Street expected. Revenue also improved from a 3% drop the prior quarter to flat at $9.398 billion, its first quarter without declining sales in the last year.
Analyst consensus is for the company to report 4% higher sales this quarter and a 5% gain next quarter, according to FactSet. Earnings are not expected to return to growth until the second half of the year amid expenditures to improve stores.
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Niccol Has His Work Cut Out For Him
Niccol has a lot of work to do to achieve the kind of results he got at Chipotle. Starbucks other ratings are still weak as he struggles to right the ship. For example, it has a so-so 60 Composite Rating out of 99.
Starbucks stock is now considered extended and out of buy range after clearing a 103.32 buy point in a first-stage cup with handle. See if the stock forms a new pattern or follow-on buying opportunity like a three-weeks tight or pullback to the 50-day or 10-week moving average.
Meanwhile, Starbucks holds the No. 25 rank among its peers in the 54-stock Retail-Restaurants industry group. CAVA Group, Dutch Bros and Cheesecake Factory are among the top five highly rated stocks in the group.
IBD's proprietary RS Rating identifies technical performance by using a 1 (worst) to 99 (best) score that shows how a stock's price action over the trailing 52 weeks matches up against other publicly traded companies.
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