Deutsche Bank Cuts Starbucks (SBUX) to Hold on 'Lofty' Expectations

Deutsche Bank downgraded Starbucks (NASDAQ: SBUX) from Buy to Hold with a price target of $64.00 (from $70.00). Analyst Brett Levy is more cautious due to high expectations and valuation.

"We believe the combination of lofty near-term investors' expectations, operational changes and a premium valuation creates a less favorable risk-reward on the shares," said Levy. "We continue to respect the company's longer-term strategy (execution, innovation, infrastructure investments on labor, technology and capital management), 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."

"We believe SBUX shares are largely at fair value at this point, based on our expectations for more limited upside to its results in the coming quarters. We are therefore taking a pause from recommending the shares. While solid topline growth has translated into mid-teen earnings growth over the last few quarters (in-line with its long-term model), it has not always translated into meaningful earnings upside (as the company often reinvests in its business) or share price appreciation. With SBUX already executing at the top of its game and with challenging comparisons (domestic SSS of ~8% / global comps of +5% or better over the last year), the shares offer a less attractive risk-reward," added the analyst.

For an analyst ratings summary and ratings history on Starbucks click here. For more ratings news on Starbucks click here.

Shares of Starbucks closed at $60.90 yesterday.

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