Starbucks will be the next US brand to warn of China trouble after Apple, Goldman Sachs says

Key Points
  • Goldman Sachs downgrades Starbucks to neutral from buy, citing China concerns.
  • The firm also lowered its price target on Starbucks to $68 from $75.
  • Goldman also downgrade Yum Brands to sell.
A view of Starbucks Coffee at Tsim Sha Tsui on July 26 2018 in Hong Kong, China.
S3studio | Getty Images

Apple shares collapsed earlier this month after warning that iPhone sales would fall short because of weakness in the China economy.

Starbucks will be next, according to Goldman Sachs.

The firm downgraded the world's largest coffee seller to neutral from buy on Friday, citing "a number of points of caution on China."

"The recent AAPL [Apple] announcement (while potentially also product-driven) cited trade concerns/macro, and MCD [McDonald's] acknowledged softer trends in the region at a late November event," analyst Karen Holthouse wrote in a note to clients. "The GS macro team also expects a continued slow down in GDP, at least partially driven by consumption."

Goldman also lowered its price target on Starbucks to $68 from $75. The shares fell 0.8 percent in trading Friday to $63.73 following the Goldman call.

Starbucks downgraded at Goldman Sachs over China concerns

Starbucks has 3,600 stores in China and wants to double that number in the next four years.

China will cut its GDP growth target for 2019 to 6 percent from 6.5 percent at a government meeting in March, policy sources told Reuters. The government is expected to take more monetary and fiscal measures to boost the economy this year amid weakening domestic demand and an ongoing trade battle with the U.S.

Trade talks between the two countries appear to be progressing well, but investors are striking a cautious tone until a formal agreement is announced by the March 2 deadline. It's unclear what the effect of the trade battle has had directly on U.S. brands selling in the country, but many Wall Street analysts believe Apple is facing an "informal boycott" of its products by some Chinese consumers.

Goldman noted that Starbucks has doubled the return of the S&P 500 since the firm added the stock to its buy list in late 2014, so now is a good time to take some profits. Starbucks reports earnings on Jan. 24.

Yum Downgraded

Goldman also downgraded shares of Yum Brands to sell on Friday, citing valuation and concerns about U.S. sales momentum at Pizza Hut and Taco Bell.

The firm lowered its price target on Yum to $76 from $83. The stock fell 2.2 percent in premarket trading Friday to $89.75.

— With reporting by CNBC's Michael Bloom

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