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On Monday, Starbucks Corporation (NASDAQ:SBUX), currently trading at $89.89 with a market capitalization of $102.15 billion, maintained its Neutral stock rating with a steady price target of $85, as confirmed by Goldman Sachs analysts. According to InvestingPro data, analyst targets for the stock range from $69 to $125, reflecting mixed sentiment about the company’s prospects. The decision follows Starbucks’ announcement to reduce prices on a variety of beverages, including Frappuccinos, lattes, and teas in China, effective from June 10. The price cuts will range from Rmb2 to Rmb6 on several drinks, with certain popular non-coffee beverages starting at Rmb20+. This strategic move comes as InvestingPro analysis indicates that net income is expected to decline this year, despite the company’s strong revenue of $36.35 billion in the last twelve months.
The move to lower prices comes as Starbucks aims to remain competitive amid a cautious consumer spending environment and increased promotional activity from delivery platforms in China, which has enabled consumers to access lower-priced options. The price adjustments are seen as a strategy to draw more customers, particularly in the afternoon, and to boost sales of non-coffee items.
Starbucks’ pricing strategy keeps its products at a premium compared to lower-cost brands, despite the reductions. The company’s initiative reflects a tactical response to the evolving market conditions and the need to adapt to consumer demand and competitive pressures.
The announcement was made through Starbucks’ Weixin social media account and has been covered by various media outlets. These reports suggest that the price reduction is a targeted effort to attract a broader customer base, especially for non-coffee items which may have a higher appeal later in the day.
Goldman Sachs’ reiteration of the Neutral rating and price target indicates their current stance on Starbucks’ stock remains unchanged in light of this development. The firm’s analysis suggests that while the price cuts may drive increased traffic and sales, the overall financial outlook for Starbucks does not warrant a change in rating at this time. InvestingPro analysis reveals the company trades at a relatively high P/E ratio of 32.62, with an overall Financial Health score of FAIR. For deeper insights into Starbucks’ valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Starbucks has announced a reduction in the prices of select iced beverages in China by an average of 5 yuan ($0.70). This move is part of the company’s strategy to enhance its service offerings throughout the day, particularly focusing on the afternoon segment. Meanwhile, TD Cowen downgraded Starbucks stock from Buy to Hold, setting a price target of $90, citing concerns over earnings potential and market competition. The firm highlighted potential challenges, including delayed same-store sales recovery and heightened industry competition.
Conversely, RBC Capital Markets maintained an Outperform rating for Starbucks, with a price target of $95, following discussions with the company’s CFO, Cathy Smith. RBC noted Starbucks’ strategic focus on labor investments and variable expenses. Additionally, Starbucks is exploring options for its China operations, including a potential stake sale, amidst growing competition from local coffee chains like Luckin Coffee (OTC:LKNCY). The company reported net revenue of about $740 million in China for the quarter ending in March, highlighting the market’s significance despite competitive pressures. Starbucks’ ongoing evaluation of its China business reflects its commitment to adapting strategies for growth in the region.
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