On Wednesday, UBS revised its outlook on Starbucks Corporation (NASDAQ:SBUX), reducing the coffee giant's price target from $95.00 to $85.00, while keeping a Neutral rating on the shares. The adjustment follows Starbucks' release of its second fiscal quarter results, which showed lower than expected global same-store sales (sss), margins, and earnings. The company also revised its fiscal year 2024 guidance downwards, now expecting low single-digit (LSD) revenue growth, a decrease from the previously forecasted 7-9%.
Starbucks' updated guidance includes expectations of negative to flat U.S. and global same-store sales, contrasting with the earlier 4-6% projection. Additionally, the company anticipates approximately 6% net unit growth, a slight decline from the initial estimate of around 7%. Adjusted earnings per share (EPS) growth is now projected to be flat to low single-digit, a significant reduction from the 15-20% range previously anticipated, with operating margins expected to remain unchanged.
The reduction in the price target reflects challenges including a 7% decline in U.S. customer traffic, influenced by various factors. UBS notes that constrained consumer spending and some customers boycotting the brand contributed to the weak trends that persisted into the third fiscal quarter to date. Despite management's strategies to enhance sales through improved throughput, innovation, and marketing initiatives, UBS anticipates that transaction pressures will persist for the remainder of the year.
UBS also pointed out that while Starbucks' valuation appears undemanding at around 20 times the forecasted fiscal year 2025 earnings per share, the uncertainty regarding the timing of a sales turnaround in the U.S. and China markets is expected to continue affecting the stock's performance.
InvestingPro Insights
In light of the recent performance and projections for Starbucks Corporation (NASDAQ:SBUX), InvestingPro offers additional context to investors. The company's market capitalization stands strong at $100.19 billion, reflecting its significant presence in the industry. Despite the challenging quarter, Starbucks still boasts a healthy P/E ratio of 23.69, which is in line with near-term earnings growth expectations. Moreover, the company has demonstrated a commitment to shareholder returns, having raised its dividend for 14 consecutive years. This resilience is indicative of Starbucks' long-term strategies and its ability to navigate a dynamic market landscape.
From a financial health perspective, Starbucks' revenue growth over the last twelve months, as of Q1 2023, is 11.46%, showcasing its ability to expand amidst economic headwinds. Additionally, the company has maintained a gross profit margin of 27.87%, which is a testament to its operational efficiency. For investors considering the long-term prospects of Starbucks, it’s also noteworthy that analysts predict the company will be profitable this year, a positive sign amid current market uncertainties.
For those seeking deeper insights and additional investment strategies, InvestingPro provides a suite of tools and metrics. There are 10 more InvestingPro Tips available at https://www.investing.com/pro/SBUX, which could further guide investment decisions. To access these and other premium features, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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