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On Thursday, TD Cowen analysts announced a downgrade of Starbucks stock (NASDAQ:SBUX) from Buy to Hold, while setting a price target of $90.00. The firm cited concerns about the company’s earnings potential and market competition as key factors influencing the decision. According to InvestingPro data, 26 analysts have recently revised their earnings expectations downward, with the stock currently trading at a P/E ratio of 30.86, significantly above industry averages.
The downgrade reflects TD Cowen’s projections for Starbucks’ earnings per share (EPS) for the years 2026 to 2028, which the analysts believe will settle at a base lower than the current consensus. The analysts highlighted labor investments as a central aspect of the company’s turnaround strategy that may not be fully accounted for in market expectations. InvestingPro’s comprehensive analysis indicates the company’s Financial Health Score is currently rated as FAIR, with revenue showing a slight decline of 0.5% over the last twelve months.
TD Cowen also pointed out potential challenges Starbucks could face, including the risk of a delayed return to normalized same-store sales (SSS). This delay could be exacerbated by customers’ deteriorating value perceptions, the company’s historical underperformance during recessions, and heightened competition in the coffee industry. Based on InvestingPro’s Fair Value analysis, the stock appears to be trading near its fair value, with additional insights and detailed valuation metrics available in the Pro Research Report, part of the comprehensive analysis covering 1,400+ US stocks.
Starbucks shares currently trade above their historical multiples, according to TD Cowen’s assessment. The analysts have modeled mid-term EPS approximately 10% below the consensus, suggesting a more cautious outlook on the company’s financial performance in the coming years.
The new price target of $90.00 represents TD Cowen’s adjusted expectation for the stock’s value, taking into account the various risks and challenges that may impact Starbucks’ future earnings and market position.
In other recent news, Starbucks Corporation has been actively engaging in strategic initiatives and facing operational challenges. The company reported net revenue of approximately $740 million in China for the quarter ending in March, amidst growing competition from local coffee chains. Starbucks has initiated a process to explore options for its China operations, including a potential stake sale, as part of its efforts to revamp its presence in the crucial market. Meanwhile, RBC Capital Markets and Bernstein have maintained their positive outlook on Starbucks, with RBC reiterating an Outperform rating and a $95 price target, while Bernstein holds an Outperform rating with a $90 target. Both firms highlighted Starbucks’ strategic moves and labor model adjustments as factors influencing their ratings.
In the United States, Starbucks is facing labor-related challenges, with hundreds of employees going on strike in protest of a new dress code. Despite these strikes, the company reports minimal impact on national store operations. Analysts from TD Cowen have reaffirmed a Buy rating with a $90 price target, citing Starbucks’ focus on operational efficiency and customer satisfaction as part of its turnaround plan. Additionally, Starbucks is investing significantly in its Green Apron program, which aims to enhance customer experience and operational efficiency across its stores. As Starbucks navigates these developments, investors remain attentive to the company’s strategies and their potential impact on future growth and profitability.
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