On Monday, Citi updated its outlook on Starbucks Corporation (NASDAQ:SBUX), slightly increasing the price target to $99.00 from the previous $98.00 while maintaining a Neutral rating on the coffee giant's shares. The firm's analysis suggests that investors are preparing for a fourth quarter that may not meet expectations, with potential softness in U.S. comparable store sales, weaker performance in China, negative earnings per share (EPS) growth, and possibly revised long-term guidance.
The update comes amid anticipation of the company's fourth-quarter results, where investors are not expecting the management to provide detailed guidance for fiscal year 2025 or specific strategies to address the challenges facing Starbucks globally. Instead, they anticipate only broad statements regarding investment and opportunities for improvement.
Citi anticipates a broad range of potential outcomes for Starbucks' multi-year revenue and EPS growth. The firm also expects that the new CEO will likely defer providing long-term guidance until having more time to assess the business, possibly around the first-quarter earnings report.
The firm noted that Starbucks' stock has seen a significant increase, rising approximately 25% in the past three months. However, without a clear EPS base or long-term guidance to anchor expectations, Citi suggests that there might be an unfavorable near-term risk-reward scenario for the company's shares.
In other recent news, Starbucks Corporation has been making notable strides in its global coffee research and development efforts. The company has announced the addition of two new coffee innovation farms in Guatemala and Costa Rica, which are set to test hybrid coffee varieties and explore new farming technologies. Along with this, Starbucks has been a part of escalating labor union actions across the United States, with employees holding strikes over staffing issues.
In the realm of financial analysis, the company's stock has seen varied perspectives from different firms. BofA Securities has raised its price target on Starbucks shares to $118, maintaining a Buy rating. This reflects their confidence in the company's operational performance. Baird also reiterates its positive outlook for Starbucks, maintaining an Outperform rating and a $110.00 price target. They anticipate a 3-4% annual growth rate in U.S. unit counts for Starbucks.
However, Jefferies has downgraded Starbucks' stock rating from 'Hold' to 'Underperform', citing concerns over operational challenges and the anticipated impact on earnings growth. Despite these diverse views, TD Cowen and BMO Capital have expressed confidence in the new CEO, Brian Niccol, to drive Starbucks' growth. These are among the recent developments that the company is navigating through.
InvestingPro Insights
Recent InvestingPro data aligns with Citi's cautious stance on Starbucks (NASDAQ:SBUX). The company's P/E ratio of 26.77 and PEG ratio of 3.02 suggest that the stock may be trading at a premium relative to its near-term earnings growth potential, supporting Citi's Neutral rating. This is further emphasized by an InvestingPro Tip indicating that Starbucks is "Trading at a high P/E ratio relative to near-term earnings growth."
Despite these valuation concerns, Starbucks maintains a strong market position with a market capitalization of $108.88 billion. The company's revenue for the last twelve months stands at $36.48 billion, with a modest growth of 4.17%. Another InvestingPro Tip highlights that Starbucks is a "Prominent player in the Hotels, Restaurants & Leisure industry," underscoring its competitive strength.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 6 more tips available for Starbucks on the platform.
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