On Wednesday, Citi adjusted its outlook on Starbucks Corporation (NASDAQ:SBUX), reducing the coffee giant's price target from $99.00 to $96.00, while maintaining a Neutral rating on the stock. The firm's analysis pointed to Starbucks' recent pre-announcement, which sparked numerous strategic considerations among investors. These strategies include reinvesting in store experiences, labor investments, a shift in focus towards in-store customer interaction possibly affecting mobile sales, and adjustments to pricing structures.
The report from Citi noted that Starbucks has not provided any guidance for FY25. Historically, a fourth-quarter figure around $0.80 would project to approximately $3.10 in earnings per share (EPS) for FY24, which would value the company's shares at over 30 times trailing earnings.
The firm indicated some potential for cost reductions but expressed reservations about the stock's appeal, given the possibility of further sales rebasing and the expectation that long-term growth rates might align more closely with those of global quick-service restaurants rather than the higher targets seen in the past.
Citi's commentary highlighted the absence of forthcoming FY25 guidance from Starbucks, despite the company's discussion of various strategic initiatives. The firm underscored the challenges in finding the investment case compelling due to the potential for additional sales rebasing and a shift in long-term growth expectations.
The assessment by Citi reflects caution regarding Starbucks' future performance, particularly in the context of its earnings potential and stock valuation. By maintaining a Neutral rating, Citi signals a stance of watchfulness, acknowledging the company's strategic efforts but also recognizing the uncertainties and challenges that lie ahead.
Investors and market watchers will likely monitor Starbucks closely as the company continues to navigate its strategic initiatives and communicates further financial projections. The revised price target from Citi provides a current benchmark against which Starbucks' stock performance can be measured in the near term.
In other recent news, Starbucks Corporation reported a decrease in its fiscal fourth-quarter global comparable store sales by 7% and a 3% decline in consolidated net revenues to $9.1 billion. The company also recorded a 25% drop in GAAP earnings per share to $0.80 compared to the previous year. Despite these figures, the company's Board of Directors approved an increase in the quarterly cash dividend from $0.57 to $0.61 per share.
Starbucks has suspended its guidance for the fiscal year 2025, a move that Deutsche Bank analysts suggest might be strategic, providing new CEO Brian Niccol with the flexibility to make investments and seek input from the new leadership team. Niccol is expected to elaborate on his initial observations and priorities during the upcoming earnings call, with a more comprehensive strategy for a turnaround likely to be presented in early 2025.
Analysts' perspectives on Starbucks' stock vary, with Deutsche Bank and BTIG maintaining a Buy rating, while Jefferies downgraded Starbucks' stock rating from 'Hold' to 'Underperform', citing operational challenges. Starbucks is also expanding its global coffee research efforts with the addition of two new coffee innovation farms in Guatemala and Costa Rica. These are among the recent developments at Starbucks Corporation.
InvestingPro Insights
To complement Citi's analysis, InvestingPro data offers additional insights into Starbucks' financial position. The company's market capitalization stands at $109.72 billion, with a P/E ratio of 27.09, slightly above the industry average. This valuation aligns with Citi's observation about the stock's current pricing relative to earnings.
InvestingPro Tips highlight that Starbucks has raised its dividend for 14 consecutive years, demonstrating a commitment to shareholder returns. This is further supported by a current dividend yield of 2.35% and a dividend growth rate of 7.55% over the last twelve months. These factors may provide some stability for investors amid the strategic shifts and potential growth rate adjustments mentioned in Citi's report.
However, it's worth noting that 7 analysts have revised their earnings downwards for the upcoming period, which could be related to the concerns raised about future sales and growth rates. Additionally, Starbucks is trading at a high P/E ratio relative to near-term earnings growth, with a PEG ratio of 3.03, suggesting the stock may be overvalued based on expected growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further context to Starbucks' financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.