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“Overall, this is a risk reward and valuation call, and there is not much more to it than that,” wrote analysts at Deutsche Bank, after they lowered their recommendation on Starbucks (NASDAQ:SBUX) from Buy to Hold, with a price target of $106.
Shares of Starbucks are well off their 12-month low near $68 in May and are back above $100 after a recent rally. They closed Friday at $105.05. However, upside from here may be limited.
“In essence, with SBUX, we think the ‘easy part’ of the move has probably taken place with the stock at ~$105, which is the reason for the ratings change at this point in time,” the analysts said. “We consider ourselves to be truly neutral at current levels; neither positive nor negative.”
Overall, around 20 Starbucks analysts have the equivalent of a hold rating on the stock, indicating a general lack of enthusiasm. This may be due in part to concerns about the economy.
“Spending some additional time with the model and thinking through the setup from here, we could envision a ’25x P/ E multiple on a ~$5.00 adjusted EPS figure for Fiscal 2025e’ bull case emerging, which of course would equate to a ~$125 stock over time, and which represents ~19% upside from current share price levels,” said Deutsche Bank analysts. “In the event this bull case ultimately proves to be correct, we think that a move like that makes sense to think about over the coming ~12 to 18 month time period; but the offsetting risk here is of course that the potential U.S. recession dynamic has not gone away (i.e. it is still very much lurking entering calendar 2023), and whether that is ‘well telegraphed’ or not, it has the potential to be impactful to the domestic business (and earnings).”
