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Starbucks gets downgraded as analyst predicts weaker-than-expected China sales

  • Wedbush Securities lowers its rating to neutral from outperform for Starbucks shares, predicting the company's sales growth will come in below expectations next year.
  • Our "China analysis points to lower contribution to overall revenue growth than initial management commentary," the firm says.
Starbucks
Leon Neal | AFP | Getty Images

Starbucks' big expansion into Asia will underperform the company's guidance, according to one Wall Street firm.

Wedbush Securities lowered its rating to neutral from outperform for Starbucks shares, predicting the company's sales growth will come in below expectations next year.

Starbucks management said Jan. 31 that the company's China business will represent approximately 25 percent of its sales growth in fiscal 2018 and 2019. But after analyzing Starbucks' disclosures and financial results for its China stores, Wedbush analyst Nick Setyan predicts the Asian country will only produce 20 percent of the company's revenue growth in fiscal 2019.

As a result, he estimates Starbucks will generate same-store sales growth of 2.5 percent in fiscal 2019 versus the Wall Street consensus of 3.3 percent and management's long-term guidance of 3 percent to 5 percent.

"China analysis points to lower contribution to overall revenue growth than initial management commentary," Setyan wrote in a note to clients Thursday. He added he no longer sees drivers of same-store sales growth and EPS consensus expectations for fiscal 2018 and sees "rising risks to FY19 expectations."

Starbucks shares fell 0.5 percent Thursday after the report.

Setyan reduced his price target for Starbucks shares to $56 from $70. The new target is 3 percent lower than Wednesday's closing price.

Starbucks sent the following statement when asked for comment on this story:

"We continue to see Starbucks as a growth company, uniquely positioned in our industry."

— CNBC's Michael Bloom contributed to this story.