This morning Starbucks shares are traded higher, thanks to it being upgraded at Thomas Weisel Partners to Overweight from Market-Weight with a $34.00 target. The note points to the recent stock price and management expectations should be more than account for the challenging consumer environment and rising operating costs.
The only problem is that the value is still not present and Wall Street is almost certainly not going to go out and pay the same multiple that it was willing to pay in 2006 and prior years. Based on Fiscal SEP-07 estimates it trades at 30.4 times 2007 earnings and trades at 25-times 2008 earnings estimates. The stock is up almost 2% at $26.65 mid-afternoon and has already exceeded its normal daily trading volume.
Friedman Billings Ramsay just downgraded this last week to a ‘Market Perform’ rating and Goldman Sachs threw in the towel and removed it from its Conviction Buy List back on June 12. The 52-week trading range is $25.22 to $40.01 (low on June 25) .
Usually on a fallen-from-grace premium stock it takes more than a boutique research upgrade off of a new 52-week low to mark a true bottom. It could very well trade up from here, but we would expect this to keep more of a negative bias until all the coffee has passed under the bridge. This is obviously much closer to a low than it was before, but any weakness in the market or if it hasn’t fixed its pre-growth-plan problems that we outlined on May 9 will add more pressure again.
Jon C. Ogg
June 28, 2007
Jon Ogg can be reached at firstname.lastname@example.org; he does not own securities in the companies he covers.