KeyBanc Downgrades Starbucks Amid Slower Recovery

Starbucks Corporation SBUX may deliver a slower same-store sales and earnings recovery than was previously anticipated and versus its peers, according to KeyBanc Capital Markets.

The Starbucks Analyst: Eric Gonzalez downgraded Starbucks from Overweight to Sector Weight.

The Starbucks Thesis: There is limited upside for Starbucks in the near term, given the currently challenging sales trends and the stock’s high valuation, Gonzalez said.

“Sales trends continue to lag traditional fast food chains due to its heavy breakfast exposure, large urban footprint, and affluent consumer base (which more likely has the ability to work from home),” the analyst wrote in a note.

He reduced the fiscal 2020 and 2021 earnings estimates from $1.52 per share to 74 cents per share and from $2.73 per share to $2.59 per share, respectively, to reflect a more gradual recovery in sales, lower profit flow-through, and higher interest expenses.

In its latest update, Starbucks reported that its U.S. same-store sales had improved to a decline of 32% and, excluding closures, it had improved to a decline of 28% during the last week of May.

Gonzalez pointed out that the improvement was modest from the 35%-40% decline around three weeks ago. He added that same-store sales trends for reopened stores had decelerated from a decline of 25% at end-April to a decline of 28% at end-May, largely due to sales transfer as more stores reopened.

SBUX Price Action: Shares of Starbucks declined 5% to $74.94 at the time of publishing on Thursday.