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Stock Analysis & Ideas

Starbucks: Nothing New to Serve Up

Shares of Starbucks (NASDAQ: SBUX) fell 4.5% Tuesday, and continued their slide today, after Wedbush analyst Nick Setyan downgraded the stock from a Buy to a Hold and lowered the price target from $105 to $91, implying an upside potential of 9.7%. Setyan’s price target is the lowest price target on the Street.

The analyst reasoned that while the stock’s current valuation takes into account the risks lying ahead, he sees “no catalysts for the foreseeable future.” Let us look at why Setyan thinks so.

The stock has not fared well recently. Year-to-date, it has tanked 29% as it battles a number of challenges, including unionization efforts, the slowdown in China, store closures, and management uncertainties.

Earlier this week, SBUX’s new CEO, Howard Schultz, outlined his vision for the company. Schultz took over the reins of SBUX as an interim CEO after the previous CEO, Kevin Johnson, stepped down from his position on the 4th of April.

The first step that he stated was the immediate suspension of the coffee retailer’s stock buyback program. The CEO stated his rationale, “This decision will allow us to invest more profit into our people and our stores — the only way to create long-term value for all stakeholders.”

Schultz also pointed out the headwinds for the company, including supply chain constraints, the havoc caused by COVID-19, geopolitical tensions and unrest, and “a racial reckoning and a rising generation which seeks a new accountability for business.”

For analyst Setyan, the cancellation of share repurchases was “a surprise” as the analyst had felt “meaningful ongoing repurchases would cushion the blow from necessary incremental investments as Howard Schultz addressed SBUX’s various headwinds.”

Moreover, the analyst pointed out that with declining visibility into SBUX’s businesses in the U.S. and internationally, and until Schultz “finishes charting what appears to be a more meaningfully new direction for SBUX,” he does not see any new catalysts for the stock.

Setyan is highly convinced that the company’s return to low double-digit growth in EPS in Fiscal Year 2023 is at risk due to the above reasons.

Wall Street’s Take

The rest of the analysts on Wall Street, however, continue to remain cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 13 Buys and 10 Holds. The average SBUX stock forecast is $112.95, implying a 36% upside potential from current levels.

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