Goldman Sachs analyst Steven Kron reiterated his Neutral rating on Starbucks (SBUX), raising concerns that the continued deterioration in the broader economy will overshadow whatever reforms SBUX management is able to implement. Kron thinks that the bottom line is that a true recover is several quarters away:
Improving sales, restaurant level margins and unit economics will be the key drivers of sustained relative outperformance at Starbucks once they materialise – but we think this is several quarters away and limited visibility into operating improvements suggests it is still too early and valuation is not low enough to tilt the risk/reward decidedly positive.
In the meantime, Kron thinks that SBUX will continue to suffer from the ongoing economic slowdown, despite management’s best efforst to turn things around:
We expect shares to come under modest pressure tomorrow, despite the positive reaction in after-market, and see no compelling reason to own SBUX shares in the near-term. Despite our favourable view of the actions taken by management to date to transform the business, we think the benefits of cost saves, store closures, and reduced capex will be overshadowed by the current state of the business which seems more tied to economic conditions.
Kron reduces his price target from $17 to $16 and reiterates his Neutral rating.
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