Goldman Sachs Lowers Starbucks Price Target, Sees Potential 2017 Overhang

Although Starbucks Corporation SBUX comp sales are expected to accelerate from F3Q levels, costs could be an overhand in FY17, Goldman Sachs’ Karen Holthouse said in a report. She maintained a Buy rating on the company, while reducing the price target from $73 to $69.

“We believe SBUX has comp levers to pull and see room for multiple expansion over the coming 12 months as comp sales accelerate from F3Q levels,” analyst Karen Holthouse wrote. She added, however, that near-term upside in shares would depend on:

• Consensus estimates better reflecting the announced 2017 investments
• Improved visibility into “where the cost offsets are in the growth algorithm”

Comp Sales To Reaccelerate

Changes in the loyalty program are likely to have caused a blip in the digital business, and also resulted into some delay in other initiatives or marketing efforts. However, management indicated that comps would likely reaccelerate.

Holthouse mentioned that “there’s still room to the push behind “mobile order and pay”, and more personalized marketing/better use of app white space are only beginning.”

Potential Overhang

Starbucks foresees a multi-year investment cycle. Management projected at least 15 percent EPS growth in FY17, versus the long-term target of 15-20 percent. The analyst reduced the EPS estimates for FY17 and FY18 from $2.20 to $2.12 and from $2.57 to $2.47, respectively.

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