Analysts bail on Starbucks with 2 downgrades, slashed price targets. 'Stunning across-the-board miss,' says Blair

Published Wed, May 1 202412:01 PM EDTUpdated Wed, May 1 202412:31 PM EDT

Nearly a dozen analysts have either slashed their price targets or downgraded Starbucks after its disappointing quarterly report, viewing existing headwinds as a longer-term issue for the coffee chain. Starbucks' fiscal second-quarter earnings and revenue fell short of analyst estimates, driven by a surprise decline in same-store sales. After the bell Tuesday, the company also slashed its fiscal 2024 earnings and revenue forecast, as it anticipates the underperformance will continue for several quarters. Shares have fallen to a 52-week low, tumbling nearly 17% during Wednesday's session, and putting the stock on pace for its worst day since March 2020. Shares are down roughly 23% year to date. With the weakest traffic performance outside the pandemic or the Great Recession, Starbucks posted a "stunning across-the-board miss on all key metrics," said William Blair analyst Sharon Zackfia. She downgraded the stock to market perform and assigned it a $73 price target, which suggests shares could tumble 17.5% from Tuesday's close of $88.49 per share. "While management has a slew of initiatives underway to right the ship, the significant reversal of fortune for Starbucks begs the question of whether bigger — and tougher — issues are afoot such as if the company has overreached on price or if the brand's appeal has lost some of its luster," Zackfia wrote in a Tuesday note. Zackfia expects the company's lower forecast to be attainable. It calls for full-year low-single-digit revenue growth and flat-to-slightly higher earnings per share. But the guidance leaves "significant uncertainty" on how quickly its revenue and profit growth can make a rebound, she said. Further, the forecast puts the stock in a "show-me state" with its goal to return next year to its algorithmic growth target of more than 15% earnings growth, Zackfia added. Starbucks forecasts that sales will start improving in the fiscal fourth quarter. SBUX YTD mountain Starbucks shares year to date. Deutsche Bank echoed that concern in its downgrade to hold. The stock is "facing broad-based headwinds with limited visibility into pace of recovery," analyst Lauren Silberman said in a Wednesday note. She pointed to Starbucks' deceleration in its U.S. market, with limited improvement from the chain's recent Lavender and Spicy Refreshers launch. The poor performance of the new offering makes it harder to "underwrite a meaningful reacceleration" amid a more challenging consumer and macroeconomic backdrop, she said. Adding to Silberman's concerns are ongoing consumer and same-store sales weakness in China and Starbucks' decision to slow unit growth. But Deutsche kept its $89 price target, which suggests the stock could gain just 0.6%, as of Tuesday's close. "We still see SBUX as one of the highest quality global restaurant companies trading at multi-year lows, though given reduced visibility into the timing of an inflection and earnings, we believe the risk/reward is balanced," she said. Starbucks stock hasn't logged a positive year since 2021. Several other firms — including JPMorgan, Wells Fargo, UBS and Bank of America — cut their price targets but maintained more bullish stances on the stock. Bank of America's Sara Senatore maintained her buy rating and $108 price target, which implies roughly 22% potential upside — a fairly bullish aim compared with other firms. Underpinning Senatore's stance is her expectation that Starbucks' earnings growth will reaccelerate in 2025, fueled by traffic-driving initiatives, such as more menu innovation and operational improvements. CEO Laxman Narasimhan told analysts during the company's conference call that Starbucks is planning to offer a version of its app that attracts its occasional customers and is also exploring ways to meet overnight demand. JPMorgan analyst John Ivankoe kept his overweight rating but moved his price target lower to $92 from $100. He noted that the results were a "genuine downside surprise" and that management is facing pressure to perform, particularly as the brand is facing an overhang with unionization efforts in U.S. stores and its stance over the Israel-Hamas war.