On Monday, JPMorgan Chase downgraded Starbucks (NASDAQ:SBUX) from “overweight” to “neutral,” as reported by InvestorPlace. The investment firm has assigned a 12-month target price of $55, which represents a potential fall of 18.9% from yesterday’s closing price. JPMorgan Chase analysts stated that it will take a long time for US customers’ shopping habits to recover. As a result, the firm downgraded the stock.
Meanwhile, many analysts have lowered their target price for Starbucks. The company announced that its same-store sales in China could fall by 50% during the second quarter. The COVID-19 outbreak led to the closure of over 50% of restaurants in February, which could deeply hurt Starbucks’s sales during the quarter. Meanwhile, the company said that 90% of its restaurants in China started operating by mid-March with enhanced safety protocols. Jefferies, MKM Partners, Cowen, RBC, JPMorgan Chase, Piper Sandler, Stifel, KeyBanc, and Bernstein have all lowered their target prices since the announcement. Meanwhile, MKM Partners also downgraded the stock to a “neutral” rating.
Wall Street favors a “hold” rating for the stock. Among the 33 analysts that follow Starbucks, 57.6% recommend a “hold,” 39.4% recommend a “buy,” and 3.0% recommend a “sell.” As of Monday, analysts’ consensus target price was $80.52. The target price represents a 12-month return potential of 18.8%.
Starbucks sales could fall
In the first quarter, Starbucks generated approximately 65% of its revenue from its US business. Meanwhile, on March 27, Restaurant Business reported that a survey conducted by the National Restaurant Association showed a decline of 47% in sales between March 1 and March 22. The declines were before the announcement of a nationwide lockdown by the Trump administration. On March 24, President Trump announced a nationwide lockdown until April 12. Now, the lockdown will likely end later in April. So, Starbucks’s sales could decline in the second and third quarters of fiscal 2020. In the international markets, I think that Starbucks’s sales could be weak for the next few quarters.
Analysts expect Starbucks’s sales to decline by 3.8% in the second quarter and 7.8% in the third quarter. Overall, for fiscal 2020, they think that the company will report revenues of $26.07 billion. The amount represents a fall of 1.6% from $26.51 billion in fiscal 2019. They also expect the company’s EPS to fall this fiscal year. For fiscal 2020, analysts expect Starbucks’s EPS to be $2.38, which represents a fall of 15.9% from $2.83 in fiscal 2019.
Despite JPMorgan Chase’s downgrade, Starbucks stock rose to a high of $68.34 on Monday before closing the day at $67.79. The amount represents a rise of 7.5% from the previous day’s closing price. Investors’ optimism due to fewer COVID-19 cases and deaths led to a rally in US markets. The rally appears to have caused Starbucks stock to rise. Despite the rise on Monday, Starbucks has lost 22.9% of its stock value this year. The company has underperformed McDonald’s (NYSE:MCD) and the S&P 500 Index. During the same period, McDonald’s has fallen by 10.4%, while the S&P 500 Index has declined by 17.6%. In comparison, Dunkin’ Brands (NASDAQ:DNKN) has lost 30.4% of its stock value.
I think that Starbucks will likely continue to underperform the broader equity market and its peers going forward. With unemployment expected to rise to over 20%, I think that Starbucks’s sales could suffer in the near term. Read Has Starbucks’s Stock Price Bottomed Out? to learn more.