Piper Jaffray Downgrades Starbucks On Comp Performance

Piper Jaffray analysts consider this move "in retrospect something we should have done previously." The valuation deliberately occurs at a time in which Starbucks Corp. SBUX has demonstrated a suggested lack of comp performance.

The Analyst

Piper Jaffray analysts led by Nicole Miller Regan downgraded Starbucks from Overweight to Neutral and lowered the price target from $60 to $53.

The Thesis

Starbucks demonstrates modest downside risk, but also an absence of upside potential within a reasonable timeline. Regan lists a couple determining factors for the downgrade.

“The stock price performance suggests expectations have tapered. Many of the issues we have outlined are not new. As an example, executive turnover, even with the best laid succession plans, often causes disruption. And while guidance has increasingly reconciled towards reality, it is not to the level of conservatism that may be warranted,” Regan said in a note.

Estimates are below consensus in same-store sales and forward earnings projections, Regan said. She notes the team is hesitant to gauge performance solely by comp level.

“While we are extremely averse to the situation where comp discussions continually overshadow other aspects of the business and the longer-term framework, we believe the stock is range bound at best until U.S. trends improve,” she said in the note. Regan continues to see substantial value in the long-term opportunity growth in China, in congruence with the Nestle S.A. NSRGY alliance.

The analyst considers the downgrade a “move to the sidelines,” as the team plans to reevaluate its thesis later this year.