Goldman Sachs Removes Starbucks From Conviction List, Maintains Buy Rating

Starbucks Corporation SBUX lost its place on Goldman Sachs' conviction list as the firm lowered its estimates for the coffee retailer.

The Analyst

Analyst Karen Holthouse removed Starbucks from Goldman's conviction list, but maintained a Buy rating and lowered the 12-month price target from $73 to $68.

The Thesis

The first quarter of 2018 “only contributes to a narrative of inconsistency," Holthouse said in a Friday note. (See the analyst's track record here.)

Since July 26, 2016, when Starbucks was first added to Goldman's conviction list, shares are up 3.8 percent compared with the S&P 500's 30.9-percent gain and restaurants under the firm's coverage being up 20 percent, she said.

U.S. comp volatility, a longer-than-expected cycle of partner and digital investments and inflation in dairy and coffee prices are key risks for Starbucks, the analyst said.

"SBUX continued to introduce or better articulate new comp challenges, including weaker holiday merchandise sales, general weakness on 'lobby' items and the loss of a typical seasonal benefit from spending holiday gift card balances," Holthouse said.

Holiday card loads were flat year-over-year despite strong increases in the previous two years, she said.

A “lighter version” of the rewards program launching in April could provide an inflection point by incentivizing higher spending among less frequent customers, Holthouse said, pointing to Panera’s success with a similar model.