TD Cowen analyst Andrew M. Charles downgraded the shares of Starbucks Corp
The analyst noted an increasing investor narrative on China (~16% of 2025E EBIT), which is worrisome and is poised to persist, given parallels to Yum circa 2005 when China began a decade of dominating the investor focus. While pleased with Starbucks China's 3Q (June) performance, he sees the risk that China headwinds are likely to get stronger rather than weaker.
The analyst lowered 2024-25E China comparable sales to 14% & 5% from 26% & 9.5%.
The analyst highlighted low-priced competition that is gaining share, with aggressive discounts that are poised to persist for the next 2+ years, China macro headwinds that bode poorly for consumer spending.
The analyst still views non-China International space as a bright spot in Starbucks' portfolio.
The analyst modeled 4Q23, 2024 & 2025 North America comparable sales of 7%, 6% & 6%, virtually in line with 6.4%, 5.7% & 5.8% Consensus Metrix (CM).
The analyst is encouraged by the U.S. playbook that has demonstrated an impressive recovery in 2021-23 & has kept the brand relevant with younger consumers.
The analyst added that the momentum is balanced with slowing m/m non-farm payroll growth given near peak employment that intuitively has greater risk of further slowing than accelerating.
The analyst lowered 2023-25E EPS to $4.10, $4.78 and $5.58 from $4.20, $4.96 & $5.90, relative to $4.10, $4.81 & $5.59 consensus.
Price Action: SBUX shares are trading lower by 2.26% at $94.57 on the last check Tuesday.
