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Investing.com -- Starbucks (NASDAQ:SBUX) saw its stock upgraded at Jefferies to Hold from Underperform after seeing a significant pullback of nearly 30% since broader market highs in February.
The company’s last closing share price of $79.69 is nearly aligned with Jefferies’ price target of $76, pointing to “limited near-term downside.”
“SBUX recent stock price underperformance points to lack of visibility on earnings in the near term, exacerbated by the recent consumer uncertainty and inflation potential of tariffs,” analysts led by Andy Barish said in a note.
“Thus, we suspect our below-consensus estimates are closer to reality (although many puts and takes exist in model currently, with no guidance and a brand-new CFO having recently joined) and point to a flatter earnings recovery over the next two years,” they added.
The analysts believe that Starbucks is facing a foundational challenge related to its culture and people, which will require time to address.
The brokerage draws a comparison to Chipotle Mexican Grill (NYSE:CMG) and notes that the turnaround at Starbucks may not mirror the successes seen there, given different leadership dynamics.
The expectation is that the upcoming fiscal second quarter (F2Q) results will likely disappoint, which could lead to lower fiscal year 2026/2027 estimates from analysts.
Moving forward, Jefferies plans to monitor Starbucks’ progress under its "Back to Starbucks" strategy, which includes investments in partners and technology to improve operational consistency and address service time issues.
The investment banking firm also flags the risk of higher coffee costs and the potential lack of pricing power as Starbucks moves away from price increases implemented after the minimum wage increase in California on April 1, 2024.
Analysts see Starbucks’ stock valuation as fair at approximately 20x fiscal year 2027 earnings. This multiple has been a historical bottom during challenging periods for the company.
“Lack of near-term earnings visibility continues to be a challenge at SBUX, but that being said we do believe there will some more signposts given over coming qtrs as the team settles in,” analysts concluded.
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