Starbucks Will Have To Ramp Up Same-Store Sales To Meet Its Guidance

In a research report on Friday, Jason West of Credit Suisse reaffirmed a Neutral rating on Starbucks' stock with a price target lowered to $55 from a previous $58.

West noted that Starbucks' reported same-store sales (SSS) in the Americas rose 5 percent but the U.S. segment felt short at just 4 percent growth. Same-store sales figures also fell short of expectations in Asia at 1 percent versus an expected 5 percent and Europe at -1 percent versus expectations for a flat reading.

Starbucks' management cited "economic, consumer and geopolitical headwinds" in its global business which prompted the analyst to revise its 2017 estimates. Specifically, West's new valuation model assumes the company's Americas will post SSS growth of 4 percent in the first half of 2017 and 5 percent in the bottom half, while global comps are expected to come in slightly below these figures.

West is now assuming around 50 basis points of EBIT margin expansion in 2017, which is a reduction from his prior estimate of 80 basis points due to softer comps and higher-than-expected investments in labor and digital.

Finally, West lowered his fiscal 2017 earnings per share estimate to $2.12 from a previous $2.13 and also lowered his 2018 earnings per share estimate to $2.41 from a previous $2.43.

Bottom line, the analyst's $55 price target is based on a 26x multiple on his 2017 P/E estimate, which is in line with the stock's five-year average.