Deutsche Bank Is 'Taking A Coffee Break,' Downgrades Starbucks

Deutsche Bank’s Brett Levy believes that Starbucks Corporation’s SBUX risk/reward profile is less favorable, given the elevated investor expectations for the near term, along with operational changes at the company and premium stock valuation.

The analyst downgraded the rating on the company from Buy to Hold, while lowering the price target from $70 to $64.

Less Favorable Risk-Reward

“We continue to respect the company's longer-term strategy, and remain impressed with Starbucks' industry leading SSS growth and solid profit growth, but believe these factors are fully priced into the shares at this time,” Levy mentioned.

Levy believes that the stock is fairly valued at present, given expectations of limited upside to Starbucks’ already robust operating results in the coming quarters.

The analyst also pointed out that although “solid topline growth has translated into mid-teen earnings growth over the last few quarters, it has not always translated into meaningful earnings upside or share price appreciation.”

Challenging Comps

Levy cautioned that the structural changes taking place could adversely impact the same store sales comparisons going forward.

While the company’s results continue to be among the best in class, the challenging sales comparisons are likely to lead to limited upside for the stock over the next few quarters.

In addition, changes to the domestic loyalty program might lead to slower traffic trends over the coming quarters.

“Longer-term, we believe Starbucks is making the right financial and strategic investments, but we would prefer to find a better entry point on its shares,” Levy added.