Starbucks: 4 Reasons to Buy on Overblown Strike Fears

Key Points

• Starbucks union workers went on a five-day strike, causing 170 stores to experience temporary closures.
• Starbucks stock has been cascading lower through most of December but has triggered a market structure low buy signal.
• Starbucks is helmed by the former CEO of Chipotle, Brian Niccol, as he implements the “Back to Starbucks” turnaround strategy.

Coffee retailer Starbucks Co. NASDAQ: SBUX stock sold off for the majority of December 2024 as its union workers went on a five-day strike on December 20. The Starbucks Union Workers is a coalition of over 11,000 baristas across 535 company-owned stores in the United States.

While that may seem like a lot of workers, the retail/wholesale sector leader employs over 200,000 workers in over 10,000 stores in the country.

The company is coming off a kitchen sink quarter and faces growing competition from McDonald’s Co. NYSE: MCD, Dutch Bros Inc. NYSE: BROS and Luckin Coffee Inc. OTCMKTS: LKNCY. Newly appointed CEO Brian Niccol, formerly CEO of fast-casual restaurant operator Chipotle Mexican Grill Inc. NYSE: CMG, has taken the helm with a turnaround plan. Here are four reasons to buy the sell-off.

1) The Worker’s Strike Is Viewed as Mostly Noise at Best

The Starbucks Union strike lasted five days to protest the lack of progress in negotiations with management. The union wants an immediate 64% increase in the minimum wage for hourly employees and an overall 77% raise throughout a three-year contract. The union stated this strike was just an initial show of strength as they are "just getting started."

The impact of the strike was minuscule, with just 170 stores experiencing temporary closures while 98% of its stores operated normally. Whether management is in any hurry to implement an immediate 64% minimum wage raise is doubtful, especially since it last offered a 1.5% minimum wage increase in the coming years.

2) The Kitchen Sink Quarter Set the Bar Low for 2025

Ambulatory surgical centers (ASCs) are medical facilities that are more cost-effective, flexible, efficient, and patient-friendly. These freestanding facilities specialize in specific types of surgeries. Procedures can cost nearly 50% less at an ACS than at a hospital, with much less red tape and higher profit margins. Patients love them because they are more affordable and less expensive.

3) The “Back to Starbucks” Turnaround Strategy Targets a Return to Growth

CEO Niccol implemented a turnaround plan called "Back to Starbucks." This four-point plan consists of the following:

• Enhancing customer experience by simplifying the menu, speeding up service and reintroducing self-serve condiment bars.
• Optimizing pricing and value by eliminating non-dairy milk charges and focusing on premiumization.
• Empowering baristas by investing in better tools and training and reducing complexity.
• Refocusing on core values by reconnecting with the “third place” concept of being a comfortable gathering space and fostering an inviting atmosphere.

The company is scaling back on new store growth to free up capital to invest in its turnaround plan. It has also suspended annual forecasts to enable flexibility in implementing the turnaround. Starbucks has also discontinued its use of olive-oil-infused Oleato beverages.

4) SBUX Is Forming a Potential V-Bottom Pattern

A V-bottom is a reversal pattern comprised of a steady and sharp selloff that makes a swing low before triggering a market structure low (MSL) buy trigger to stage a rally back to the starting point of the selloff.

SBUX peaked, forming the lip at the $103.32 swing high on November 25, 2024. Shares plummeted down to a swing low of $86.46 on December 23, 2024. The market structure low (MSL) buys trigger formed on the higher low candle at $89.92. The buy signal triggered the following day as share surged to close at $92.25 after the trigger.

The daily anchored VWAP support is rising at $89.88. The daily RSI is attempting to curl back up at the 41-band. Fibonacci (Fib) pullback support levels are at $88.36, $86.46, $79.15 and $72.53.

Actionable Options Strategies: Bullish investors can consider using cash-secured puts to buy SBUX at the Fib pullback support levels for entry and write covered calls to execute a wheel strategy for income.