On Tuesday, Starbucks Corp. (NASDAQ:SBUX) received a downgrade from hold to underperform from an analyst at Jefferies, who also lowered the coffee giant’s price target to $76 from $80 previously. The revision reflects concerns about the company’s operational challenges and the expected impact on its earnings growth.
The analyst noted that while Starbucks’ next CEO has expressed a willingness to implement strategic changes, the actual implementation of those changes could face hurdles. Key areas such as operations, corporate culture, customer value perception, and technology will need time to improve.
These factors are expected to hamper the company's financial performance, especially as the company expects low single-digit EPS growth for FY25, which is below the consensus expectation of an increase of 11-12%.
Starbucks’ current market valuation of 25 times price-to-earnings (PE) is seen as at risk of declining toward the 23 times PE common among its industry peers. The analyst’s new $76 price target is based on a forward PE of 19 times for fiscal 2026, suggesting a potential downside of 20% from the current level.
The downgrade comes amid concerns over negative existing store sales (SSS) trends in the U.S. and internationally, which are likely to pressure the company’s earnings and valuation multiples. The analyst’s outlook suggests a cautious view of Starbucks’ near-term prospects as the company navigates the aforementioned challenges.
In other recent news, Starbucks is seeing some major developments. BofA Securities raised its price target on Starbucks shares to $118, while maintaining a buy rating. The revision reflects the company’s growing confidence in Starbucks’ operating performance, supported by the expectation of higher comparable store sales growth.
Goldman Sachs Group Inc. affirmed its buy rating on Starbucks, highlighting the company’s commitment to enhancing customer experience and operational efficiency. TD Cowen and BMO Capital set a $110 price target, expressing confidence in new CEO Brian Niccol to drive Starbucks’ growth.
Despite a 6% decline in North American transactions in the second quarter, analysts expect Starbucks to see earnings growth of more than 15% over the next three years under Nichol's stewardship.
Michael Conway, CEO of Starbucks North America, has announced his retirement, effective November 30, 2024. The company has not yet announced a successor to the position. This is among the latest developments the company is dealing with.
According to analysts' expectations, Starbucks is expected to maintain its growth trajectory and improve its operational performance under the new leadership of Brian Niccol.
