Starbucks stock faces challenges ahead of earnings, UBS maintains Neutral rating

Investing.com - UBS maintained its Neutral rating and $95.00 price target on Starbucks (NASDAQ:SBUX), currently trading at $93.83, ahead of the coffee chain’s fiscal third-quarter earnings report scheduled for July 29. According to InvestingPro data, the company, valued at over $106 billion, appears slightly overvalued at current levels.

UBS analyst Dennis Geiger expects "still challenged US traffic/sss trends" for Starbucks, with continued margin and earnings pressure due to likely top-line softness and incremental investments. Investor expectations for the quarter include U.S. same-store sales declining approximately 1-2%, according to UBS. InvestingPro analysis reveals that net income is expected to drop this year, with FY2025 EPS forecast at $2.41. The stock currently trades at a relatively high P/E multiple of 34x.

Investor sentiment remains "largely cautious" due to sluggish sales trends, elevated investments, and limited visibility into the company’s multiyear earnings power, while the firm notes that valuation "isn’t cheap." The market will be closely watching for updates on Starbucks’ strategic turnaround plans. For deeper insights into Starbucks’ valuation and financial health metrics, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with expert analysis and actionable intelligence.

UBS highlights that particular attention will focus on insights from the Green Apron Service Model, which has been implemented in approximately 2,000 stores since May. The firm believes investors are expecting a mid-single-digit percentage sales lift in those locations, which could be "one of the more impactful earnings call takeaways."

UBS has modestly lowered its earnings per share estimates, including fiscal year 2026 to $2.76, largely reflecting incremental labor investments. The firm indicates it would need "better visibility into a positive inflection in underlying sales growth and greater earnings power clarity" before becoming more constructive on Starbucks shares.

In other recent news, Starbucks announced a quarterly cash dividend of $0.61 per share, payable on August 29, 2025, to shareholders of record as of August 15, 2025. This dividend is part of Starbucks’ ongoing capital return strategy. Ahead of its upcoming earnings report, RBC Capital maintained its Outperform rating on Starbucks, citing confidence in management’s labor investments to drive growth. However, Jefferies downgraded Starbucks to Underperform, expressing concerns about operational challenges and the potential negative impact of significant investments on earnings. Melius Research also initiated coverage with a Sell rating, highlighting concerns about Starbucks’ operational consistency and competition in the Chinese market. Additionally, CEO Brian Niccol announced an increase in office work requirements to four days a week for certain employees, effective September 29, as part of efforts to strengthen company culture. These developments come as Starbucks continues its business turnaround strategy under new leadership.

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