Starbucks Corporation (NASDAQ: SBUX) has gained more than 40% since its year-to-date low in mid-May but a Jefferies analyst warns it’s as far as it goes.
Starbucks stock is trading at a fair price
Andy Barish downgraded the coffee company this morning to “hold”. He now has a price objective of $100 on the Starbucks stock, which does not represent a meaningful upside from here.
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The analyst is dovish primarily because of the looming recession. A potential hit to consumer spending in 2023, he wrote, will reflect in the company’s same-store sales.
We lower our U.S. SSS ests to account for this via negative transaction growth, although it may come in form of softer avg check as well, which has been significant in form of price, premiumization, cold, and modifiers.
On top of that, recovery in China could be somewhat choppy, thereby adding to the list of headwinds for the Starbucks stock, Barish added.
Starbucks overpromised at its investor day
According to the Jefferies analyst, Starbucks may have set expectations a bit too high, especially for the current macroeconomic backdrop – and so, it now runs the risk of underdelivering.
Although we believe the brand and efforts over the past 18 months put it in a strong position to execute, it’s not immune from consumer/macro weakness and guidance for +7-9% SSS growth could be at risk as consumer behavior changes.
In September, the multinational, at its investor day, projected an annualised growth rate of 15% to 20% for its net earnings over the next three years. That’s rare for a large cap company, Barish noted.
Here’s how Starbucks did in its recent reported quarter.
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