Starbucks Corp. (NASDAQ: SBUX) has more or less kept pace with the broad markets over the course of 2017. Although the year is nearly halfway over, can this coffee giant continue to keep pace with the markets? One key analyst actually sees Starbucks slowing down for the rest of the year and maybe into 2018 as well.
Wedbush maintained its price target at $65, but the firm is downgrading Starbucks to a Neutral rating from Outperform. In a sense, what is happening is that big of a change. In fact, Wedbush now views its current 2017 and 2018 expectations as realistic and the current valuation as fair.
According to the firm, the recent outperformance reflects expectations for U.S. comp acceleration in the second half of 2017. Starbucks is up 12.3% since mid-March, versus 3.2% for the S&P 500, and it is now within 7% of its price target. Wedbush believes this recent outperformance is predicated on expectations for a second half U.S. comp reacceleration following signs of improving trends in March and April.
In terms of operating margins in the Americas segment, Wedbush is modeling 24.7% in fiscal 2017 and 25.1% in fiscal 2018, compared with the consensus estimates of 24.5% and 25.1%, respectively. Any potential upside is expected to be reinvested in partner and technology initiatives.
The firm recently performed checks of 5% of U.S. co-owned locations and saw a modest acceleration in the fiscal third quarter. However, Wedbush expects overall fiscal third-quarter Americas comps to be in line to slightly below 5.3% consensus, while it is continuing to model 5% for the fiscal third quarter.
Wedbush concluded by rounding out the international segments:
We also see EMEA, CAP and Channel Development segments in line with expectations. We view EMEA and CAP comp expectations implying reacceleration to 1.5% and 5% in 2H as realistic, but believe further upside is unlikely. We also do not see upside in Channel Development given expectations for continued margin expansion and top line improvement, despite several quarters of underperformance and limited visibility into drivers for U.S. reacceleration.
Shares of Starbucks closed the week at $60.14 apiece, with a consensus analyst price target of $66.52 and a 52-week range of $50.84 to $64.87.