Wake up and smell the coffee, Wall Street.
There's a new reality at Starbucks Corp. (SBUX) , and it ain't so pretty.
Following sobering new guidance issued on Tuesday, June 19, the company's shares slumped 7.3% in early trading Wednesday to $53.26 as investors reacted to plans by Starbucks to shutter some 150 U.S. stores next year amid amped-up competition. Global same-store sales now are expected to rise 1% versus the previous consensus forecast of 3%. More details will be coming when the company reports its third-quarter earnings on July 26.
Many analysts who filed notes on Tuesday and Wednesday, though, are maintaining their ratings, perhaps blinded by the Howard Schultz effect, a kind of halo effect, although the former CEO is out the door as chairman on June 29. CEO Kevin Johnson is now in charge.
Here's a rundown of the analysts' notes:
- Oppenheimer & Co. Maintaining outperform, wrote Brian Bittner in a note following the bank's consumer conference, at which Johnson and Starbucks CFO Scott Maw presented on Tuesday in Boston. "Primary risks to our price target [of $66] are consumer-spending deterioration, coffee cost increases, coffee import tariffs, competition, earnings momentum fall-off, Europe macro headwinds, China macro headwinds, labor inflation and anything that could cause perception of the brand to be impaired," Bittner wrote. That about covers it.
- Jefferies Inc. Buy, wrote Andy Barish, who added its price target of $69 is based on 15 times enterprise value to Ebitda for 2019. "Although another disappointment and guide-down likely may not be well received," he added, "the stock trades at a relative value compared to some recent improvements in restaurant valuations."
- BMO Capital Markets Corp. Maintaining market outperform, wrote Andrew Strelzik, who reduced the price target to $56 from $58, "as we await greater visibility into a sustained improvement" in comparable store sales.
- Piper Jaffray & Co. Maintaining overweight, wrote Nicole Miller Regan, while dropping its price target to $60, down $10, and placing it in the bank's recovery group "as we believe in the long-term strategic plan offset by less near-term upside potential."
- Morgan Stanley. Lowering from overweight to equal weight and the price target from $72 to $59, John Glass wrote. He added that further risks to achieving the price target are continuing U.S. and China same-store sales declines and rising costs in coffee and labor.
- Wells Fargo Securities LLC. Maintaining outperform, wrote Bonnie Herzog, who reduced the price target by $1 to $64. The ratings stays in place, Herzog wrote, due to the company's strong follow-through on many initiatives, its potential as a global powerhouse in retail, its best-in-class loyalty programs and its mobile order platform that shows results.
Starbucks declined further comment on its new guidance and the notes.
How to Play Today's Risky Markets. Register for free to watch what top experts from Bank of America, Fisher Investments, Invesco and Wells Fargo say smart investors should do now.