Jefferies has upgraded Starbucks Corp (NASDAQ:SBUX, XETRA:SRB) to Hold from Underperform, saying improving visibility in its US turnaround and reduced international exposure following structural changes in China support a more balanced outlook, even as valuation concerns persist.
The revised view reflects what Jefferies describes as a “stabilizing US business” and a clearer path to execution under CEO Brian Niccol, though it continues to see the shares trading at a premium it considers difficult to justify.
A key factor behind the upgrade is the completion of Starbucks’ China joint venture deal earlier this month, which effectively franchised the business and reduces the company’s direct international exposure. Jefferies estimates that international operations previously accounted for roughly a third of system sales and about a quarter of operating profit, but that mix is now expected to decline meaningfully post-transaction.
Jefferies noted that, on a relative basis, the company now carries less international exposure than rivals such as McDonald’s and Yum Brands, even as emerging markets remain a long-term growth driver.
Despite the improved structural setup, Jefferies cautioned that expectations for growth remain low but not yet compelling enough to support a more bullish stance. The firm models modest global net unit growth of 1.5% in fiscal 2026 and 1.8% in fiscal 2027, with longer-term expansion tied to continued development in regions such as the Middle East, China and India.
On the financial side, Jefferies is still running slightly below consensus estimates. It forecasts fiscal 2026 earnings per share of $2.27 versus the Street at $2.30, and fiscal 2027 EPS of $2.73 versus consensus at $2.95. The gap, it said, reflects more conservative assumptions on same-store sales and operating margins, as well as expectations for continued investment in labour and operations that may limit near-term profitability expansion.
The firm expects US and China same-store sales growth of around 3% in the second half of this year and into fiscal 2026, slightly below consensus estimates. For fiscal 2027, it sees both markets moderating to about 2% growth, again under consensus expectations.
Jefferies also highlighted margin pressure as a key variable, modelling operating margins roughly 100 basis points below consensus in fiscal 2027 due to ongoing investment requirements and limited visibility on cost savings.
Even so, the brokerage said the turnaround narrative is becoming more credible. It noted that expectations have been reset after a period of elevated optimism since Brian Niccol took over as CEO, with execution risks now more evenly balanced against achievable targets.
However, valuation remains a central constraint. Jefferies said Starbucks continues to trade at roughly 35 times forward earnings, compared with about 21 times for global asset-light peers and around 22 times for the broader S&P 500, a premium it views as excessive given the current growth outlook.
The broker also raised its price target on the coffee chain to $92 from $86.