On Wednesday, UBS raised the price target for Starbucks (NASDAQ:SBUX) shares to $95.00, up from the previous target of $85.00, while maintaining a Neutral rating on the stock.
The adjustment follows the company's preliminary fiscal fourth-quarter results and the introduction of new strategic initiatives by CEO Brian Niccol, dubbed "Back to Starbucks." The detailed plans are expected to be further elaborated during the earnings call next week.
Starbucks reported fiscal fourth-quarter results that fell short of Consensus forecasts but were more aligned with investor expectations. U.S. same-store sales (sss) dropped by 6%, which was more negative than the consensus estimate of a 3% decline but in line with what investors anticipated.
In China, same-store sales saw a 14% decrease, again underperforming the Consensus and investor expectation of a 12% decline. The adjusted earnings per share (EPS) stood at $0.80, below the Consensus of $1.03 but within the range investors predicted of approximately $0.85 to $0.90.
The report suggested that the sluggish U.S. results might be partly due to pressured consumer spending, with targeted and accelerated investments failing to improve customer behaviors. In China, tough macroeconomic conditions and competition were noted as contributing factors to the decline.
Starbucks also announced the suspension of its fiscal year 2025 guidance due to the CEO transition, a move that was largely anticipated by the market.
Despite the near-term challenges and expected continued transaction pressure, there is a focus on the new CEO's plans to address these issues and accelerate growth in both the U.S. and China markets.
UBS forecasts that U.S. sales trends could see improvement in the first fiscal quarter, partly due to easier comparisons and the end of boycotts in the U.S., while the expectations for fiscal year 2025 earnings were already set for flat to negative growth.
UBS expressed a belief that there is potential for an upside in Starbucks shares as the new strategic plans are unveiled and begin to take effect. However, the firm is awaiting better visibility into the execution of these plans before adopting a more constructive position on the stock.
In other recent news, Starbucks Corporation (NASDAQ:SBUX) experienced a decrease in its fourth-quarter sales and earnings per share (EPS), falling short of both investor and analyst expectations.
The coffee company reported a 3.2% year-over-year decline in fourth-quarter sales to $9.1 billion and a 24% decrease in EPS to $0.80. Despite these figures, Starbucks increased its quarterly dividend to $0.61 per share, marking a 7.0% year-over-year increase.
In light of these developments, several analyst firms have adjusted their outlooks on Starbucks. Guggenheim reduced Starbucks' price target from $95.00 to $93.00, while Goldman Sachs reaffirmed its Buy rating and Deutsche Bank raised its price target from $118 to $120. Conversely, Citi lowered its target from $99 to $96.
Amidst the ongoing CEO transition and the current business climate, Starbucks has chosen to suspend its full fiscal year 2025 guidance. Furthermore, Starbucks is expanding its global coffee research efforts with the addition of two new coffee innovation farms in Guatemala and Costa Rica.
InvestingPro Insights
To complement UBS's analysis of Starbucks (NASDAQ:SBUX), recent data from InvestingPro offers additional context for investors. Despite the challenges highlighted in the article, Starbucks maintains a strong market position with a market capitalization of $109.72 billion. The company's P/E ratio stands at 27.09, which aligns with the InvestingPro Tip noting that Starbucks is "Trading at a high P/E ratio relative to near-term earnings growth."
Interestingly, while the article discusses recent sales declines, InvestingPro data shows that Starbucks has achieved a revenue of $36.48 billion over the last twelve months, with a modest revenue growth of 4.17%. This suggests that despite short-term headwinds, the company continues to generate substantial sales.
An InvestingPro Tip worth noting is that Starbucks "Has raised its dividend for 14 consecutive years," which may appeal to income-focused investors. This is particularly relevant given the current dividend yield of 2.35% and a dividend growth rate of 7.55% over the last twelve months.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Starbucks, providing a deeper understanding of the company's financial health and market position.
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