Starbucks: Earnings Challenges May Temper Stock's Momentum
Amidst Starbucks' (SBUX) recent gains, Jefferies analyst Andy Barish cautions that the stock's risk-reward ratio is unfavorable.
Concerns revolve around fundamental factors that may hinder improvement expectations. Street estimates for same-store sales and earnings growth may be overly optimistic, posing risks to the stock's near-term performance.
Barish identifies key challenges, including:
* Uncertain pace of same-store sales recovery
* Potential margin pressures from wage and hour investments
* Delays in achieving cost-savings goals
* Slower-than-expected EPS improvements
Despite Starbucks' recent efforts to streamline operations and invest in customer experience, challenges remain evident in its latest results:
* 4% decline in global same-store sales
* Operating profit margin contraction in key segments
* Lack of guidance for the current fiscal year
Long-term investors may be betting on a recovery, but Jefferies believes this upside is already priced into the current valuation.
Barish maintains an Underperform rating on Starbucks shares, due to its unfavorable risk-reward profile.