Starbucks Cools Following J.P. Morgan Downgrade
Starbucks
Shares of coffee giant Starbucks (SBUX) - Get Report took a splash of ice on Monday after the company received a downgrade from analysts at J.P. Morgan, who noted that the share price at current levels has "limited" additional upside.
In a note to clients, J.P. Morgan analyst John Ivankoe said he was downgrading Starbucks to neutral from overweight and that "upside from here is limited" now that the stock has climbed over 90% in the past 12 months."
Shares of Starbucks climbed as much as 9% last week, posting their biggest one-day gain since Nov. 2, following the company's fiscal third-quarter earnings report, which beat Wall Street's forecasts. They were down a little more than 1% at $98.07 on Monday.
Ivankoe noted that post-earnings gains have taken the company's share price "to levels well above even our $91 December 2020 price target." Ivankoe left his $91 12-month price target unchanged. He also removed the company from the firm's "Analyst Focus List."
"Valuation has become beyond a stretch," Ivankoe said. "Plus, being very late cycle often means continued rising labor costs matched with difficulties of generating sustained increases in same-store traffic."
Jim Cramer thinks a bit differently about Starbucks' prospects, in particular its ability to continue to grow and surprise on the upside, thanks to its quiet, tech-minded CEO, Kevin Johnson.
"Johnson recognized that if he improved on digital ordering, if he figured out throughput and he solved delivery all at the same time as introduced new products during other dayparts, like special iced coffees and Nitro, a true savior, he could accelerate numbers regardless of what (Bluestone Lane CEO) Nick Stones of the world did," Cramer said in a Real Money Pro column following Starbuck's latest earnings.
"I know many doubted Johnson. I didn't because I loved him at Juniper and he had explained to me that the real issues at Starbucks had to do with making Starbucks more convenient and hospitable whether through mobile, or delivery or store visits - both here and in China. The small players, the Bluestones? They can't compete in any of those realms."
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