Why Cowen Downgraded Starbucks Stock
On April 13, 2018, Andrew Charles of Cowen and Company downgraded Starbucks (SBUX) from “outperform” to “market perform.” He also lowered the stock’s 12-month target price from $68 to $65. The new target price for Starbucks represents a return potential of 9.7% from its current stock price of $59.24 as of April 13, 2018.
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Charles said that although the collective market share of independent craft coffee shops in the ready-to-drink coffee business is relatively small, there is evidence to suggest that they are eating into Starbucks’s market share. He noted that during the 2017 holiday season, the company’s gift card activations, an indicator of the success of loyalty efforts, were abnormally low. In addition, independent craft coffee shops are adding new shops at double the rate of Starbucks. Due to these observations, he has lowered his SSSG estimates for 2018 to 2.3% from the previous estimate of 2.8%. He lowered his 2019 estimate to 3.0% from 4.0%.
Starbucks has been struggling with its beverage SSSG (same-store sales growth) for the last few quarters. Charles expects the company’s food sales to continue to outpace its beverage sales, which could deleverage the company’s gross margins and labor expenses.
Other analyst recommendations
On March 29, 2018, Wedbush downgraded Starbucks from “outperform” to “market perform,” and lowered the target price to $56 from $70. Of the 31 analysts that follow Starbucks, 58.1% are favoring a “buy,” 38.7% are favoring a “hold,” and 3.2% are favoring a “sell” recommendation. As of April 13, 2018, analysts are expecting the company stock price to reach $63.78 in the next 12 months, which represents a return potential of 7.7%.
The target price and return potential of Starbucks’s peers are as follows:
- Dunkin’ Brands (DNKN) has a target price of $63.11 with a return potential of 4.6%.
- McDonald’s (MCD) has a target price of $187.04 with a return potential of 15.7%.
- Domino’s Pizza (DPZ) has a target price of $238.58 with a return potential of 3.6%.
Next, we’ll look at Starbucks’s stock performance.