Starbucks Comps Continue To Get Roasted

A week after reporting in-line earnings, Starbucks Corporation SBUX is still losing fans.

BMO Capital Markets downgraded the coffee chain to Market Perform and lowered its price target from $64 to $56, citing “deeper issues contributing to slower U.S. comp trajectory.”

Analyst Andrew Strelzik predicted limited momentum driven by accelerating geographic overlap in U.S. stores and cannibalization of unit traffic, which may justify a slowdown in development.

Increasing overlap from premium coffee rivals, the sales decline and potential market saturation of specialty beverages, and a perceived need to invest in labor to alleviate throughput issues compound Strelzik’s concerns.

“These factors support ideas SBUX should lower its growth algorithm and trade at a multiple below historical levels,” he wrote in a Wednesday note, lowering comp estimates for American stores from 5 percent to 3.5 percent.

Nonetheless, he affirmed Starbucks’ capacity to grow in the long term through consistent, if slower, comp and earnings-per-share growth.

BMO Capital’s downgrade brings the number of Hold ratings on the stock up to 10, but not all analysts are skeptical.

Several offered more bullish interpretations of the Starbucks story, with BTIG’s Peter Saleh encouraged by food sales, digital engagement and expansion plans for the Chinese market. Saleh is one of 19 analysts with a Buy rating on the stock.

At time of publication, Starbucks was trading around $53.50, down 1.8 percent on the day and well below the Street’s average price target of $64.30.

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