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Why Cowen Downgraded Starbucks Stock

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Part 2
Why Cowen Downgraded Starbucks Stock PART 2 OF 2

Starbucks Stock Fell after Cowen’s Downgrade

Stock performance

As of April 13, 2018, Starbucks (SBUX) was trading at $59.24, which represents a fall of 0.3% from the previous day’s closing price. The downgrade from Cowen and Company led the company’s stock price to fall as low as $58.96. However, the company’s stock price recovered later.

Starbucks Stock Fell after Cowen’s Downgrade

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Year-to-date performance

2017 was a tough year for Starbucks with its stock price increasing by only 3.4%. Since the beginning of 2018, the stock price of Starbucks has increased by 3.2%. In comparison, peers Dunkin’ Brands (DNKN), McDonald’s (MCD), and Domino’s Pizza (DPZ) have returned -6.4%, 6.0%, and 21.9%, year-to-date, respectively. The S&P 500 Index (SPX) and the Consumer Discretionary Select Sector SPDR ETF (XLY) have returned -0.6% and 2.6%, respectively.

Valuation multiple

Valuation multiples help investors compare companies with similar business models. Due to the high visibility in Starbucks’s earnings, we have opted for the forward PE (price-to-earnings) multiple. As of April 13, 2018, Starbucks was trading at a forward PE multiple of 22.4x. In comparison, Dunkin’ Brands, McDonald’s, and Domino’s were trading at forward PE multiples of 22.1x, 20.8x, and 27.4x, respectively.

Analyst estimates

For the next four quarters, analysts are expecting Starbucks’s revenue and EPS to rise 12.4% and 18.8%, respectively. In the next four quarters, analysts are expecting the company to post revenue of $25.6 billion and EPS of $2.53.

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