EU and US could reach trade deal this weekend - Reuters
On Friday, Morgan Stanley adjusted its outlook on Starbucks Corporation (NASDAQ:SBUX), reducing the price target to $98.00 from the previous $104.00, while maintaining an Overweight rating on the company's shares. The firm's analyst cited several factors influencing the revised target, including a modest foreign exchange headwind and a lower-than-expected operating margin forecast.
The analyst predicts an earnings per share (EPS) of 91 cents, slightly below the Street's consensus of 94 cents and the prior estimate of 92 cents. Operating margin expectations are set at 16.3%, which is also below the Street's projection of 16.6%. The margins for both North American and International segments are anticipated to fall short of the Street's expectations, partly due to the impact of promotional activities.
Despite a negative surprise in general and administrative (G&A) expenses in the second quarter, the analyst anticipates less risk in this area for the third quarter. For the fiscal year, the firm models flat earnings year-over-year, aligning with the company's guidance of flat to a low single-digit percentage increase.
A slight degradation in operating margin is expected, followed by a modest expansion in fiscal year 2025 and approximately 12% EPS growth. This growth projection accounts for minimal operational expense leverage in-store operations but some improvement in other cost lines.
The forecast for fiscal year 2025 EPS has been adjusted to $3.98 from the previous $4.14. Additionally, the unit growth estimate for fiscal year 2024 has been trimmed to 5.8% from the guided figure of around 6%, with a 6.4% growth rate still expected in fiscal year 2025, which remains below the company's long-term growth algorithm. The new price target of $98 is based on a 24 times multiple of the calendar year 2025 EPS estimate of $4.10.
In other recent news, Coca-Cola (NYSE:KO) Co. and Starbucks Corp . have initiated procedures to protect their trademarks in Russia, despite halting operations in the country. Both companies have submitted several trademark applications to the Russian intellectual property agency, Rospatent, to safeguard their intellectual property rights. This move follows their exit from the Russian market after the invasion of Ukraine in 2022.
In a significant legal victory, the U.S. Supreme Court ruled in favor of Starbucks Corp against a lower court's injunction that had ordered the reinstatement of seven employees who were let go amid unionization efforts at a Memphis location. This ruling potentially makes it more difficult for courts to intervene with immediate effect in disputes over labor practices deemed unfair.
Goldman Sachs has initiated coverage on Starbucks Corporation stock with a Buy rating, citing the coffee giant's potential for a favorable risk-reward scenario. The firm pointed to early signs of improvement in customer visitation data, which supports its positive outlook for Starbucks.
Brazilian restaurant chain operator Zamp is set to acquire the rights to operate Starbucks in Brazil, along with a number of the coffee giant's stores, for $22.7 million. The exact number of Starbucks stores included in the purchase remains unspecified, and the finalization of the agreement hinges on regulatory approval and a conclusive agreement with Starbucks.
Lastly, Starbucks Corporation is facing intensified competition in China, leading the company to engage in discounting practices it previously aimed to avoid. Despite an 11% fall in same-store sales in the second quarter, Starbucks has been issuing more discount coupons to maintain its market presence.
InvestingPro Insights
Starbucks Corporation's commitment to shareholder returns is evidenced by its track record of raising dividends for 14 consecutive years. While Morgan Stanley's revised price target reflects certain headwinds, it's worth noting that Starbucks is trading at a P/E ratio of 20.04, suggesting investor confidence in its future earnings potential. Additionally, the company's revenue has grown by 7.45% over the last twelve months as of Q2 2024, showcasing its ability to expand its financials amidst challenging market conditions.
InvestingPro Tips highlight that Starbucks is a prominent player in the Hotels, Restaurants & Leisure industry, and analysts predict the company will remain profitable this year. Moreover, for those eyeing investment opportunities, Starbucks is currently trading near its 52-week low, potentially offering an attractive entry point for long-term investors. For more detailed analysis and additional tips, visit InvestingPro where there are 4 more tips available to help inform your investment decisions. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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