On Wednesday, CFRA made adjustments to its outlook on Starbucks Corporation (NASDAQ:SBUX) by reducing the price target to $104 from $108, while keeping a Buy rating on the stock. The firm's decision follows Starbucks' preliminary fiscal fourth quarter results, which showed a decrease in revenues and earnings per share (EPS) year-over-year. The company reported revenues of $9.10 billion, a 3% decline from the previous year, falling short of the consensus estimate of $9.36 billion. GAAP EPS also decreased by 25% year-over-year to $0.80, missing the expected $1.03.
In the United States, Starbucks experienced a 6% drop in comparable store sales, with a notable 10% reduction in traffic compared to previous quarters. This decline occurred despite increased in-app promotions and marketing efforts. In China, the company's comparable store sales fell by 14%. As a response to these results, Starbucks has suspended its financial guidance for fiscal year 2025, allowing the newly appointed CEO, Brian Niccol, to undertake a strategic business reset.
Despite these setbacks, Starbucks demonstrated its confidence in the long-term health of the business by increasing its quarterly dividend by 7%. CFRA views this pre-announcement as a constructive recalibration of expectations and believes that Starbucks has set a low bar for future enhancements in customer experience, value proposition, and store efficiency. However, CFRA acknowledges that the expected turnaround will likely take time and involves inherent risks.
The firm has adjusted its 12-month price target for Starbucks to $104, representing a multiple of 28 times the firm's forecasted fiscal year 2025 EPS of $3.71, which has been reduced from the previous estimate of $4.10. The fiscal year 2026 EPS is projected at $4.11. This new target is compared against the five-year average multiple of 30 times. Despite the lowered price target and the challenges ahead, CFRA maintains a Buy rating, suggesting continued confidence in the stock's potential.
In other recent news, Starbucks Corporation reported a decrease in its fourth-quarter sales and earnings per share (EPS), falling short of both investor and analyst expectations. The coffee company reported a 3.2% year-over-year decline in fourth-quarter sales to $9.1 billion and a 24% decrease in EPS to $0.80. Despite these figures, Starbucks increased its quarterly dividend to $0.61 per share, marking a 7.0% year-over-year increase. Amidst the ongoing CEO transition, the company has suspended its full fiscal year 2025 guidance but is expanding its global coffee research efforts with the addition of two new coffee innovation farms in Guatemala and Costa Rica.
Analysts have had mixed reactions to these developments. TD Cowen affirmed its Buy rating on Starbucks with a steadfast price target of $110.00, expressing confidence in the company's broader revitalization efforts under new CEO Brian Niccol. UBS raised the price target for Starbucks shares to $95.00, up from the previous target of $85.00, while maintaining a Neutral rating on the stock. Guggenheim reduced Starbucks' price target from $95.00 to $93.00, while Goldman Sachs reaffirmed its Buy rating. Conversely, Citi lowered its target from $99 to $96.
InvestingPro Insights
To complement CFRA's analysis, recent data from InvestingPro offers additional context on Starbucks' financial position. The company's market capitalization stands at $109.59 billion, reflecting its significant presence in the Hotels, Restaurants & Leisure industry. Starbucks' P/E ratio of 26.79 aligns closely with CFRA's forward-looking multiple of 28, suggesting the market's current valuation is in line with analyst expectations.
InvestingPro Tips highlight Starbucks' commitment to shareholder returns, noting that the company "has raised its dividend for 14 consecutive years" and "has maintained dividend payments for 15 consecutive years." This consistent dividend policy, coupled with the recent 7% increase mentioned in the article, underscores management's confidence in the company's long-term prospects despite current challenges.
However, it's worth noting that InvestingPro also indicates that "7 analysts have revised their earnings downwards for the upcoming period," which aligns with the disappointing preliminary results and suspended guidance discussed in the article. This suggests that the market may be recalibrating expectations in line with CFRA's analysis.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Starbucks, providing a deeper dive into the company's financial health and market position.
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