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Jefferies downgraded the coffee chain’s shares, saying that their recent rally is disconnected from the company’s business performance.
Starbucks (SBUX) investors and analysts are taking a wait-and-see approach as the coffee chain attempts to revive itself under its new chief executive.
The stock rose 0.7% on Thursday, despite a rating downgrade and negative commentary from Jefferies. The research firm shifted its rating to 'Sell' from 'Hold,' and maintained its price target at $76, which is about 23% below the stock's last close.
Jefferies is only the second analyst to recommend selling the coffee chain's shares. Seventeen of the 35 analysts covering the stock have a 'Hold' rating; in fact, 16 rate it a 'Buy' or higher, according to Koyfin data.
At $93.88, their average price target is nearly in line with the stock's current price, making Jefferies' position appear aggressive.
The research firm noted that the recent rally in the company's shares appears out of step with reality, pointing to a lack of tangible results so far from CEO Brian Niccol's turnaround efforts.
"We think expectations have once again settled too far ahead of reality: no strong evidence yet (in comps or margins) of meaningful and lasting fundamental improvements to the business, significant investments needed near-and medium-term into people & tech that could weigh on margins/earnings, and some questionable strategic priorities (ex: lack of focus on cold bevs & drive thrus, where much of the industry is focused on, vs hot bevs & in-store experience) in the face of an uncertain macro," the analysts said.
Starbucks shares have gained over 22% from a recent low on April 30. Despite that, the stock is up only 2% year-to-date.
The company reported its second-quarter earnings in April, sounding upbeat about its ongoing turnaround efforts, but the results still fell short of Wall Street expectations.
In recent weeks, reports indicate that discussions surrounding its plan to sell a stake in its China business have intensified. The company has received bids from potential investors, reportedly valuing the unit at up to $10 billion. At least one analyst has said that it is too high.
Since taking over as CEO in September, Niccol has implemented several changes, including job cuts and a revamp of the cafes and menu items.
More recently, Niccol directed Starbucks support partners and people managers to work a minimum of four days from the office.
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