Melius initiates Starbucks stock coverage with Sell rating, $80 price target

Investing.com - Melius Research initiated coverage on Starbucks (NASDAQ:SBUX) with a Sell rating and a price target of $80.00 on Monday. The coffee giant, currently trading at $94.94 with a market capitalization of $108 billion, is trading at a relatively high P/E ratio of 34.6x. According to InvestingPro analysis, the stock appears to be trading above its Fair Value.

The research firm cited concerns about the coffee giant's path to operational consistency and brand revitalization, suggesting this journey will be "longer and harder than consensus expects."

Melius noted that U.S. execution for Starbucks is still in a stabilization phase, while the company faces "intense local competition" in the critical Chinese market.

The firm acknowledged that Starbucks is working to restore its "third place" concept but faces challenges in balancing service speed with customer experience.

Melius believes the current stock price already reflects much of Starbucks' long-term potential without adequately accounting for "the time and trade-offs required to rebuild momentum," adding that while a turnaround is underway, it remains "not yet proven" with "high" execution risk.

In other recent news, Starbucks has been the focus of multiple significant developments. The coffee chain is reportedly in talks to sell a stake in its China business, with potential offers valuing the operation at up to $10 billion. Interested parties, including Centurium Capital, Hillhouse Capital, Carlyle Group (NASDAQ:CG), and KKR & Co, are competing for a stake, with some proposals seeking a controlling interest. This comes as Bloomberg reports that Starbucks is evaluating these offers and may consider selling a larger portion than initially planned. Meanwhile, Stifel has raised its price target for Starbucks to $105, maintaining a Buy rating, citing the potential benefits of securing a strategic partner in China. In the U.S., Starbucks is expected to meet or slightly exceed same-store sales expectations in its upcoming earnings report, according to Citi, which has raised its price target to $100. Citi's analysis highlights optimism around the Green Apron initiative, which could positively impact sales figures. Both Stifel and Citi emphasize Starbucks' U.S. turnaround efforts as a key factor for future growth.

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