Starbucks Corp (NASDAQ:SBUX, ETR:SRB) is encountering significant challenges as it navigates a complex turnaround, according to analysts at Jefferies.
In a note repeating their ‘Underperform’ rating on the coffee chain, the analysts cited Starbucks CEO Brian Niccol's tone during the March 12 Annual Shareholder Meeting, saying the CEO appeared cautious, reflecting ongoing difficulties in revitalizing the business.
The broker highlighted that foundational changes, including investments in staff and restructuring efforts, are proving costly and may take longer than expected to yield results.
“We believe the difficult reality in a turn of this magnitude is beginning to set in,” the analysts wrote.
The analysts also see coffee price sensitivity as a further potential headwind for Starbucks.
“Although near-term pressure noted as only $0.01 per share in US retail business, these pressures could build and sustain through fiscal 2025 and 2026,” they wrote.
“A sensitivity analysis suggests a 25% increase in coffee bean prices could result in 7% to 8% headwinds to earnings per share (EPS) in fiscal 2025 to 2026.”
Overly optimistic recovery timeline
While supply chain efficiencies and menu adjustments may help offset some costs, the company's Channel Development business remains vulnerable to these pressures, analysts added.
They awarded the stock a $76 price target, implying downside of approximately 22% at the time of writing.
Analysts expressed concern that despite recent share price declines, the stock’s valuation may still be pricing in an overly optimistic recovery timeline.
“While we acknowledge long-term investors own this stock predicated on two to three years or more of expected recovery, we think the road ahead will be bumpier than expected, upside is already overly-embedded in valuation, and further believe the long-term growth algorithm will likely come down closer to global asset-lite peers,” Jefferies wrote.