Cocoa futures might be grabbing all the headlines, but coffee prices are also breaking out to new highs in the first half of 2024. Blame it on El Nino, which typically delivers heavy rains to Brazil while hitting Vietnam with drought conditions. That's been pushing prices higher for not only arabica coffee futures (KCK24), but also May-dated robusta (RMK24), which recently surged to a new record.

As commodity prices are heating up, none other than coffee giant Starbucks (SBUX) has been freshly named to the Q2 tactical ideas list at Wells Fargo (WFC), with the brokerage firm throwing some conviction behind its “Overweight” rating. The analysts say the worst could be over for Starbucks, and price hikes in California could be a positive catalyst in the back half of the year.

The high-conviction bull note comes at an interesting time, since Starbucks stock hasn't exactly been keeping up with the market lately. But with Wells Fargo predicting a bottom at hand, and economic data pointing to a surprisingly robust U.S. consumer, is it time to pick up shares of SBUX? Let's take a closer look.

Starbucks Stock Takes a Dip

Valued at $98 billion by market cap, Starbucks Corporation (SBUX) is a global coffeehouse chain known for its signature roasts, light bites, and omnipresent coffee shop culture. The company has faced a challenging year so far, with its stock price experiencing a significant decline. 

On a year-to-date (YTD) basis, SBUX is down 9.5%. Over the past 52 weeks, the stock has lost 17.2%, while the broader S&P 500 Index ($SPX) has gained 26.6% - and SBUX set a new 52-week low as recently as last Friday.

Amidst the ups and downs, the company continues to reward its shareholders through consistent dividend payments. With a quarterly dividend of $0.57, Starbucks yields 2.63% at current levels. That's backed by 13 years of consistent dividend growth, and a solid payout ratio of 59%.

The pullback in SBUX has left the stock trading at a discount to its historical valuation multiples. With a forward price/sales ratio of 2.53 and forward price/earnings ratio of 21.43, Starbucks seems reasonably valued, compared to its 5-year average multiples of 3.61 and 35.87, respectively.

Starbucks Misses on Earnings

Starbucks recently reported financial results for the first quarter of fiscal year 2024 that fell short of analysts' expectations. The company posted Q1 earnings per share (EPS) of $0.90 - a figure that broke the coffee chain's string of beating Wall Street's quarterly earnings estimates. Similarly, Q1 revenue rose 7.9% to $9.4 billion, missing forecasts of $9.6 billion, as global comparable store sales rose a lighter-than-expected 5%.

On the plus side, North American operating margin expanded to 21.4% from 18.5%, driven by increased efficiencies. 

Following the tepid fiscal Q1 results, Starbucks lowered its forecast for full-year revenue and same-store sales growth. And ahead of the company's next earnings report, expected for May 7, analysts have downwardly revised their own Starbucks earnings forecasts more than 25 times - with zero upward revisions. That points to extremely low expectations for the company's next turn in the earnings spotlight. 

Overall, Wall Street is expected Starbucks to report EPS growth of 10% to $0.82 for the current quarter, with revenue projected at $9.22 billion. For the full fiscal year, estimates call for EPS growth of 14.4% to $4.05 per share on revenue growth of 7.8%.

What's Driving Growth at SBUX?

In a world where your morning cup of coffee can be as much a statement of personal taste as the shoes you wear, Starbucks is not just sitting back and watching the beans roast. With a massive rewards membership base driving most of its U.S. revenue, Starbucks and Bank of America (BAC)decided to join forces on a new cash-back program geared toward driving increased engagement and retention among this key group of coffee buyers. 

But Starbucks isn't just relying on loyalty programs to stay ahead of the game. They're also coming up with new and exciting menu items that keep people talking. From limited-time offerings to fancy new drinks like the Oleato, they're making sure there's always something fresh and interesting to try.

And let's not forget about Starbucks' global takeover. While results out of China and the U.S. may not have impressed with blowout growth in the most recent quarter, the company sees the India market at “an inflection point,” and the economy is “a focus area of growth” for the chain through its 50-50 Tata Starbucks venture. 

Analysts Say SBUX Stock Is a Buy

When it comes to Starbucks stock, the analyst community seems to be stirring a moderate blend of optimism. The consensus among 24 analysts is a “moderate buy,” with the breakdown showing 10 analysts have a “strong buy” rating, one suggests a “moderate buy,” and the remaining 13 say it's a “hold.” This collective viewpoint paints a picture of cautious confidence in the coffee giant's future.

The mean target price for Starbucks stands at $106.86, which represents a potential upside of about 23%. 

As for that Wells Fargo bull note, analyst Zachary Fadem thinks the coffee chain's lowered guidance could work in its favor. With Wall Street's expectations low for the rest of this year, Fadem thinks slower growth expectations are already baked into the stock price. As such, he's eyeing the upcoming earnings report as a potential turning point that could set the stage for a clearer path ahead for Starbucks.

The Bottom Line on SBUX Stock

For investors seeking out bargain-priced dividend plays, it might be worth eyeing Starbucks here, given the market's low expectations and the stock's strong rebound potential. However, with the shares setting new 52-week lows as recently as Friday, investors may want to wait for some signs of life from the stock before starting to add shares.