On Friday, HSBC analyst Meredith (NYSE:MDP) Jensen adjusted the price target for Starbucks (NASDAQ:SBUX) shares, reducing it to $84 from the previous $107 while keeping a Hold rating on the stock. The new target suggests a 12% potential upside based on the revised forecast.
The adjustment in the price target reflects a change in the expected price-to-earnings ratio (PE) for the fiscal year 2025, now set at 21.0 times earnings, down from the earlier estimate of 25.9 times. This valuation is approximately 20% below the coffee chain's 10-year average PE ratio. The analyst believes this reduction is warranted due to a significantly altered outlook for Starbucks and the anticipated time required to restore customer and investor trust.
Despite the lowered expectations, the analyst pointed out that Starbucks' stock is currently trading at a PE ratio of 18.6 times the projected earnings for FY25, which represents a roughly 28% discount compared to its 10-year average. This discounted price is thought to already factor in much of the downside risk.
Moreover, the analyst suggested that there could be potential support for the stock price from Starbucks' share repurchase program. This could provide a buffer against further declines, reinforcing the decision to maintain the Hold rating despite the reduced price target.
InvestingPro Insights
Starbucks' recent performance and analyst projections paint a complex picture for investors. With a current Market Cap of approximately $84.87B, and a P/E Ratio of 20.52, Starbucks is trading at a valuation that is close to the 21.0 times earnings for FY25 as suggested by HSBC analyst Meredith Jensen. The InvestingPro Data also shows a PEG Ratio of 1.12, indicating that the stock's price is somewhat aligned with its expected earnings growth. Additionally, Starbucks has a consistent track record of dividend payments, having raised its dividend for 14 consecutive years, which could appeal to income-focused investors.
However, the stock's recent price movement may cause concern, with a one-week total return of -15.09% and a one-month total return of -15.52%. These figures suggest a significant drop, which could be a factor in the reduced price target from analysts. On the positive side, the company's revenue growth over the last twelve months was 7.45%, and it has maintained a Gross Profit Margin of 27.74%, demonstrating its ability to generate profit efficiently.
InvestingPro Tips indicate that the stock's RSI suggests it is in oversold territory, and with 24 analysts revising their earnings downwards for the upcoming period, investors may want to watch for potential changes in market sentiment. For those looking to delve deeper into Starbucks' financials and future prospects, there are additional tips available on InvestingPro. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to a comprehensive set of tools and insights for informed investment decisions.
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