Market Overview

Should Investors Buy The Dip In Starbucks? These Street Analysts Are Saying No

Share:
Should Investors Buy The Dip In Starbucks? These Street Analysts Are Saying No
Related SBUX
IMX Dips In October, But Investors Remain Bullish
Investor Movement Index October Summary
67 Firms Going Ex-Dividend Next Week, Including Starbucks, Microsoft And GlaxoSmithKline (TalkMarkets)

Multiple Street analysts are hesitant in recommending Starbucks Corporation (NASDAQ: SBUX)'s stock, which is trading at new 52-week lows in reaction to a disappointing sales and outlook update.

The Analysts

  • Stephens' Will Slabaugh maintained an Equal-Weight rating on Starbucks with an unchanged $58 price target.
  • Stifel's Chris O'Cull maintained at Hold with a price target lowered from $58 to $55.
  • Morgan Stanley's John Glass downgraded from Overweight to Equal-weight with a price target lowered from $72 to $59.
  • Tigress Financial's Ivan Feinseth commented on Starbucks in his morning newsletter. 

Stephens: 'Worries' Remain

Starbucks said after Tuesday's market close that forecast global comps of 1 percent in the the third quarter, short of the 2.9-percent the Street was modeling, Slabaugh said in a research report. While the coffee chain does have a plan to accelerate growth and generate long-term value for shareholders through enhanced digital initiatives, the analyst said he "worries" the company doesn't have any "meaningful initiatives" to sufficiently improves sales and support the stock's valuation.

Stifel: 'Surprising' China Update

Ahead of Tuesday's announcement, investors had reason to be "bracing for somewhat challenged trends domestically," but Starbucks' update on the Chinese business was "more surprising," O'Cull said in a note. While the weakness in China could be attributed to an interruption in delivery services, the problem could persist and impact longer-term earnings growth, the analyst said. 

Starbucks' "long-argued" position that digital initiatives are accretive to sales is questionable, O'Cull said. The business is showing a decline in guests who are using the digital platform, so a "wait-and-see approach" is now appropriate, the analyst said. 

Related Link: Wall Street's Take On Starbucks Following Schultz's Departure

Morgan Stanley: Is Management Doing Enough?

Starbucks' preannouncment of "disappointing" sales in the U.S. prompts an important question: is management doing enough to turn around the business? Glass said. It's unclear to what degree digital initiatives will impact future sales, as a pattern of slower U.S. sales is now evident, the analyst said. Starbucks' decision to slow down unit growth may be "constructive," but also underscores the maturation of the brand, the analyst said. 

The poor Chinese sales outlook was a "negative surprise" that could be attributed to a disruption with a third-party delivery partner, Glass said. The narrative in China has shifted to become a "show-me" story moving forward, he said. 

Tigress: Capital Return More Important

More important to Starbucks' story moving forward is the company's commitment to return $25 billion to investors through fiscal 2020, Feinseth said in his morning newsletter. The chain's new digital strategy should contribute 1-2 percent in increased comps during fiscal 2019, and the ongoing growth initiate in China remains compelling, he said. 

Any near-term weakness in Starbucks' stock should be considered a buying opportunity, as investors should "look beyond the next quarter" to a longer-term strategy that Feinseth said will yield "significant upside" from current levels.

Price Action

Shares of Starbucks hit a new 52-week low Wednesday and were trading down 8.69 percent to $52.43 at the time of publication.

Related Link: Analyst Doesn't Expect Starbucks Sales To Be Hit By New 'Third Place Policy'

Latest Ratings for SBUX

DateFirmActionFromTo
Nov 2018MizuhoUpgradesNeutralBuy
Nov 2018BairdMaintainsOutperformOutperform
Nov 2018Bank of AmericaMaintainsBuyBuy

View More Analyst Ratings for SBUX
View the Latest Analyst Ratings

Posted-In: Analyst Color News Guidance Downgrades Price Target Reiteration Restaurants Top Stories Best of Benzinga

 

Related Articles (SBUX)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
JBLGoldman SachsUpgrades0.0
IMOBarclaysUpgrades0.0
JRVRKeefe Bruyette & WoodsDowngrades40.0
ADMPB. Riley FBRDowngrades2.5
EAFVertical GroupDowngrades9.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

AMC Theaters Joins Movie Ticket Subscription Game

Who Is Dr. Atul Gawande, Newly Appointed CEO Of The Buffett-Bezos-Dimon Health Care Coalition?