Starbucks (SBUX) PT Lowered to $102 at Citi

(Updated - March 13, 2024 4:18 AM EDT)

Citi analyst Jon Tower lowered the price target on Starbucks (NASDAQ: SBUX) to $102.00 (from $103.00) while maintaining a Neutral rating.

The analyst comments "What’s the path to growing more bullish on shares? — (1) A clear case/timeline for capacity unlocks as a U.S. SSS driver. Greater visibility into consistent US comp growth, particularly transactions, would assuage concerns on EBIT growth and likely translate into multiple expansion. (2) A plan for China that does not feel like “business as usual”, as low-cost competition across the market has exploded in recent years, posing a unique challenge for this premium-priced brand. (3) A potential growth alternative to China. (4) Increased confidence in how cost cuts could buffer top-line softness, with examples like when the brand emerged from the ‘08/’09 recession and margin bridges across segments. (5) Greater confidence SBUX has the tools to weather a softer U.S. consumer demand backdrop, including what incremental levers the brand could pull around value perceptions (e.g., bundled combos). (6) Expanded shareholder engagement, for investors to better understand key decision-makers across business units. Outlining current Bull-Bear debates — Based on conversations with investors, we see the core debates centering on: (a) the US labor situation; (b) the store-level tools/methods being implemented to unlock capacity; (c) questions around the price-value proposition for the consumer; (d) the brand’s ability to navigate a US consumer demand slowdown relative to the past; (e) if cost savings will be enough to offset top-line softness and preserve the NT EPS outlook; (f) if the China opportunity is permanently impaired due to competition; and (g) are shares “cheap”. Adjusting estimates/TP — Our FY24E/FY25E EPS move to $4.02/$4.64 from $4.09/$4.72 on lower NT comps expectations. Our TP moves to $102, which represents 13.5x our NTM, 12-months from now EBITDA and ~0.9x relative multiple (in-line with prior)."

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