Starbucks shares sink to 8th-straight loss after analyst downgrade
Shares of Starbucks Corp. sank Wednesday to an eighth straight loss, after a Wedbush Securities analyst downgraded the coffee giant for the first time, on concerns that investors may be too optimistic about the sales outlook.
The stock SBUX, -1.07% shed as much as 1.7% intraday before closing down 1.1%, after tumbling 5.6% over the past seven sessions. The current losing streak matches the eight-session stretch ending Jan. 3, 2017, which at the time was the longest since a 10-session losing streak ending Nov. 14, 2008.
Wedbush analyst Nick Seytan cut his rating to neutral, after being at outperform since he started covering the company in September 2013. He kept his stock-price target at $65, which was 7.8% above current levels.
Just before the losing streak started, the stock had soared 13% in three months to a record close of $64.57 on June 2, amid expectations of a ramp-up in comparable-store sales.
Seytan said that the sales outlook followed signs of improving trends in March and April. He suggested, however, that the current share-price levels may imply that investors are too upbeat to hold on to his bullish stance.
“We now view current 2017 and 2018 expectations as realistic and valuation as fair,” Seytan wrote in a note to clients. “Checks indicate U.S. [comparable-store sales] acceleration, but acceleration is in line to slightly below expectations.”
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Same-store-sales growth is currently expected to accelerate to 5% for the third quarter, ending this month, and then to 5.2% for the fourth quarter, according to analysts surveyed by FactSet, from 3% growth in the second quarter. Starbucks is scheduled to report third-quarter results after the July 27 close.
“Given in-line U.S. checks, we no longer see upside to margins,” Seytan wrote. “We would expect any potential upside to be reinvested in partner and technology initiatives.”
Starbucks shares have gained 8.6% in 2017, while the SPDR Consumer Discretionary exchange-traded fund XLY, -0.06% has rallied 11.6% and the S&P 500 index SPX, -0.10% has climbed 8.9%.