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Starbucks Stock Eases; Atlantic Equities Cuts Rating on Slowing Momentum

Starbucks was downgraded to neutral with a $105 price target at Atlantic Equities. The shares are lower.

Starbucks  (SBUX) - Get Starbucks Corporation Report shares edged lower on Thursday after the coffee-bar chain was downgraded by analysts at Atlantic Equities on concern that its momentum may be slowing more sharply than expected. 

Starbucks was downgraded to neutral with a $105 price target by analyst Edward Lewis.

"We remain concerned that momentum at the business may be slowing more than the market might have anticipated with comps set to return to negative territory in China and rising labor cost inflation weighing on U.S. growth," Lewis said.

With the Seattle company's stock reflecting a "healthy" 60% premium to the market, the Atlantic Equities analyst says he prefers "to take a step back."

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The firm expects the U.S. labor situation to remain a long-term headwind for the company. 

Starbucks has raised wages twice in the past 10 months. 

The investment firm estimates that 70% of its U.S. employees have been hired in the last 18 months at a starting wage of $12 an hour. Starbucks has 220,000 employees in the U.S.

Another headwind for the company is China comparable-store sales turning negative in the fourth quarter and the first quarter. Multiple regions in the country in August imposed tight restrictions to curb the spread of the delta variant of Covid-19. 

Shares of Starbucks at last check were 0.9% lower at $111.16.