It's been a hot-and-cold year on the price charts for Starbucks (SBUX) stock. Shares trended lower until mid-August when news that former head of Chipotle Mexican Grill (CMG) Brian Niccol would become the coffee chain's new CEO sparked a big swing higher. The stock is up more than 32% since then and back in positive territory for the year to date.
However, not everyone is convinced the recent rally will continue, with one analyst arguing that despite Niccol's successful track record, Starbucks stock is a Sell.
Specifically, Redburn Atlantic analyst Edward Lewis downgraded Starbucks stock to Sell from Neutral (equivalent to Hold) and assigned a $77 price target, according to MarketWatch.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Lewis said the downgrade came after reviewing the company's "Back to Starbucks" plan, which includes changes such as reintroducing the coffee condiment bar, ceramic mugs and more comfortable seating in its stores, simplifying pricing, adjusting the menu and adding more staff during its busiest hours.
"Our chief concern is the cost Starbucks must incur to deliver this recovery," Lewis said. "With shares trading above a 20-year average price-to-earnings multiple, there is little room for error."
The analyst believes the costs of Niccol's plan is not currently reflected in analysts' earnings estimates for Starbucks, which means the consumer discretionary stock is overvalued at current levels.
Lewis' $77 price target sits more than 20% below where Starbucks' is presently trading.
Where do other analysts stand on Starbucks stock?
Despite Starbucks' longer-term troubles on and off the price charts, most of Wall Street remains bullish on the blue chip stock.
According to S&P Global Market Intelligence, the average analyst target price for SBUX is $102.38, representing implied upside of nearly 4% to current levels. Additionally, the consensus recommendation is Buy.
Financial services firm Stifel is one of those with a Buy rating on Starbucks, along with a $110 price target.
"In our opinion, Mr. Niccol delivered his [turnaround] message with a level of clarity and precision that is typically the hallmark of a talented leader who knows how to focus an organization on solving the right problems," wrote Stifel analyst Chris O'Cull in an October 30 note.
O'Cull admits that the next few quarters will be "challenging" for Starbucks, but he is "encouraged by the cohesiveness of [Niccol's] plan, and the potential for the initiatives to meaningfully improve the guest experience and the trajectory of the business over time."
He anticipates the second half of fiscal 2025 "should yield meaningful evidence the strategy is working."
Related Content
-
I'm want to give my 3 grandkids $5K each for Christmas.You're comfortably retired and want to give your grandkids a big Christmas check, but their parents are worried they might spend it all. We ask the pros for help.
-
If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us?A retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read This
Roth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us? A Retirement Psychologist Makes the Case
A retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
I'm a Financial Adviser: This Is How You Can Adapt to Social Security UncertaintyRather than letting the unknowns make you anxious, focus on building a flexible income strategy that can adapt to possible future Social Security changes.
-
I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
'Boomer Candy' Investments Might Seem Sweet, But They Can Have a Sour AftertasteProducts such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
-
AI Stocks Lead Nasdaq's 398-Point Nosedive: Stock Market TodayThe major stock market indexes do not yet reflect the bullish tendencies of sector rotation and broadening participation.
-
Got $100 to Gamble? These Penny Stocks Could Be Worth the RideVolatile penny stocks are high-risk plays with potentially high rewards. If you have $100 you can afford to lose, these three names are worth a look.
-
Quick Question: Are You Planning for a 20-Year Retirement or a 30-Year Retirement?You probably should be planning for a much longer retirement than you are. To avoid running out of retirement savings, you really need to make a plan.
