Starbucks Faces Long-Term Algorithm Shift as China Worries Mount

Citigroup's Jon Tower lowered their price target on Starbucks (NASDAQ: SBUX) by 7.1% from $112 to $104 on 2023/09/25. The analyst maintained their Hold rating on the stock.

Tower's decision to revise the price target downwards reflects concerns over the deteriorating macro backdrop in China. Tower believes investors are anticipating Starbucks' upcoming fourth quarter 2023 earnings to signal a "long-term algorithm shift," which includes reduced revenue and earnings growth to 15% or higher.

Several factors in China are causing worry among investors, according to Tower. These include increasing competition in the country, ongoing macro concerns, unexpected management changes, and geopolitical tensions. The combination of these factors has led Tower to suggest that the stock "risks greater listlessness" beyond November 2, 2023.

Despite the cautious outlook, 60% of top-rated analysts currently rate SBUX as a Strong Buy or Buy, while 40% see it as a Hold. No analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that Starbucks will deliver earnings per share (EPS) of $3.4 in the upcoming year. If these predictions hold true, SBUX's next yearly EPS will increase by 3% on a year-over-year basis.

Since Starbucks' last quarterly report on July 2, 2023, the stock price has declined by 5.4%. However, on a year-over-year basis, the stock has gained 10.6%. During this period, Starbucks has trailed the performance of the S&P 500, which has risen by 15.4%.

Citigroup analyst Jon Tower is ranked in the top 9% of Wall Street analysts by WallStreetZen, out of a total of 4,337 analysts. Tower has an average return of 7.6% and a 50% win rate. Specializing in the Industrials and Consumer Defensive sectors, among others, Tower's insights carry weight in the investment community.

Starbucks Corporation, a global roaster, marketer, and retailer of specialty coffee, operates through three segments: North America, International, and Channel Development. The company's stores offer a range of coffee and tea beverages, roasted whole beans and ground coffees, single-serve products, and ready-to-drink beverages. In addition, they provide various food products such as pastries, breakfast sandwiches, and lunch items. Starbucks also licenses its trademarks to licensed stores, grocery, and foodservice accounts. The company operates a vast network of both company-operated and licensed stores in North America and internationally, under brands such as Starbucks, Teavana, Seattle's Best Coffee, Evolution Fresh, Ethos, Starbucks Reserve, and Princi.

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