Hold Rating on Starbucks Amid Q2 Sales Concerns and Uncertain Fiscal 2024 Outlook

David Tarantino, an analyst from Robert W. Baird, maintained the Hold rating on Starbucks (SBUX – Research Report). The associated price target remains the same with $93.00.

David Tarantino has given his Hold rating due to a combination of factors including the forecast for second quarter global comparable store sales (comps) that might be at or below expectations, and a cautious stance on the latter half of fiscal year 2024’s estimates which seem overly optimistic given the uncertain consumer spending environment. Although Starbucks’ valuation metrics are becoming more appealing from a long-term perspective, Tarantino prefers to wait for clearer signs of near-term comparable store sales and earnings-per-share (EPS) trends before adopting a more positive stance on the stock.
The anticipated softness in second quarter results, with expectations of EPS growth at 7% to $0.79—slightly below the consensus of $0.80—is another concern, especially considering the potential for negative year-over-year transaction growth in the United States. Macroeconomic pressures seem to be impacting consumer spending on discretionary items, which could continue into the second half of the year, possibly hindering Starbucks from achieving its previously stated fiscal 2024 guidance. Additionally, with the potential need for Starbucks to revise its guidance downwards, Tarantino suggests a more conservative outlook for the second half of the year would be prudent in the face of an increasingly challenging and unpredictable external environment.

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Starbucks (SBUX) Company Description:

Founded in 1985, Starbucks Corp. is a Washington-based roaster and retailer of specialty coffee, with over 30,000 stores in 80 markets. It operates through three segments, including Americas, International and Channel Development. Starbucks stores offer coffee and tea beverages, roasted whole bean and ground coffees, single-serve and ready-to-drink beverages, food items such as pastries, sandwiches, salads, oatmeals, as well as a variety of merchandise. The company’s leading brands include Evolution Fresh, Teavana, Tazo Tea and Seattle’s Best.