MW Analyst pours cold water on Starbucks' turnaround, as customers aren't happy

By Steve Gelsi

TD Cowen analyst downgrades coffee giant's stock, citing declining consumer perceptions of value and quality and higher labor costs

TD Cowen analyst Andrew Charles said Thursday that Wall Street's earnings expectations for Starbucks Corp. haven't taken into account labor costs or the fact that the coffee giant faces disgruntled customers and increasing competition.

Charles downgraded Starbucks' stock $(SBUX)$ to hold from buy and said turnaround efforts by former Chipotle Mexican Grill Inc. $(CMG)$ Chief Executive Brian Niccol, now at the helm of the coffee giant, may run into more complications than some bulls may believe.

TD Cowen reiterated its $90-a-share price target for Starbucks's stock as it "balances" its favorable view of Niccol against the likelihood of downward earnings projections for the company.

The stock fell 1.4% in premarket trading. The stock had rallied 7.4% in May through Wednesday, while the S&P 500 index SPX had tacked on 5.7%.

Read: Starbucks is rethinking how it serves coffee amid turnaround effort. Wall Street is fretting over the costs.

The TD Cowen analyst said exclusive data on Starbucks collected by the bank show that consumer perceptions of value and quality for Starbucks are declining relative to its peers.

The study pointed to increased chances that customers who visit the store at least once a week may cut back on their frequency, he said.

"We see risk that the company holding back price and adding labor hours signals Starbucks over earned in the two-to-three years post COVID," Charles said. "The company is still settling into a new base of earnings that differs from consensus, which appears to believe 2025 represents a period of under earning and models the company approaching previous margin levels."

For those reasons, Charles could no longer count himself among those bullish on the stock.

Of the 36 analysts surveyed by FactSet who cover Starbucks' stock, 15 are now bullish, while 19 are neutral and two are bearish. The average price target of $89.96 implies just 4.6% upside from Wednesday's close.

Starbucks' stock has fallen 5.8% in 2025 through Wednesday, while the S&P 500 has edged up 0.1%.

-Steve Gelsi

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May 29, 2025 08:44 ET (12:44 GMT)

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