Evolving Coffee Designs And Green Apron Service Will Improve Satisfaction

Analysts have modestly lowered their fair value estimate for Starbucks to approximately $97.63 per share. They cite ongoing U.S. turnaround challenges, increased competition in China, and slightly slower revenue growth expectations as reasons for the adjustment.

Analyst Commentary

Recent analyst reports reflect a dynamic outlook for Starbucks, with both encouraging signals and ongoing challenges shaping sentiment around the company's prospects and valuation.

Bullish Takeaways

• Bullish analysts have raised price targets to as high as $105, citing confidence in Starbucks' ability to manage its U.S. turnaround and capitalize on restructuring efforts.
• There is optimism around the acceleration of operational initiatives, such as the swift rollout of the Green Apron service model. This could positively impact store traffic and revenue trends ahead of schedule.
• Analysts anticipate Starbucks will at least meet near-term U.S. same-store sales expectations, underscoring a degree of resilience in core operations despite recent headwinds.
• Potential partnerships or stake sales in China are viewed as a strategic opportunity to strengthen Starbucks' market position and address increasing competition in the region.

Bearish Takeaways

• Bearish analysts remain cautious on the timeline and sustainability of Starbucks' U.S. turnaround. They highlight that improvement in transaction counts has yet to materialize.
• Heightened competition in China, where rivals have surpassed Starbucks in store footprint, is seen as a significant threat to long-term growth and market share.
• Some believe that Starbucks' pricing may have outpaced the consumer experience, raising concerns about value perception and future demand, particularly in the U.S. market.
• The broader restaurant sector is facing intensified competition from grocers and other foodservice options, making it harder for Starbucks and peers to defend traffic and maintain premium valuations.

What's in the News

• Starbucks CTO Deb Hall Lefevre has resigned, and Ningyu Chen has been named interim CTO, as the search for a permanent replacement continues (Reuters).
• Starbucks CEO Brian Niccol is prioritizing quicker and more accurate drink delivery as part of a company overhaul focused on drawing customers back to U.S. stores (The New York Times).
• The company's recent fall lineup launch generated a record-breaking sales week in U.S. company-operated stores and strong sales in Canada (Bloomberg).
• Five U.S. Starbucks plants are shifting to a five-day weekly production schedule to manage costs and reflect lower demand, adjusting from a previous seven-day operation (Bloomberg).
• Starbucks has asked potential bidders for non-binding offers on a stake in its China business, aiming to strengthen its position amid rising competition (Reuters).

Valuation Changes

• The Fair Value Estimate has decreased modestly from $99.38 to $97.63 per share.
• The Discount Rate has declined slightly from 9.21% to 9.14%.
• The Revenue Growth Forecast has been lowered from 7.46% to 6.74%.
• The Net Profit Margin is nearly unchanged, moving marginally down from 10.08% to 10.01%.
• The Future Price-to-Earnings (P/E) Ratio has edged up slightly from 32.31x to 32.54x.