By Evie Liu

Wall Street's expectations for Starbucks might be too optimistic, TD Cowen analyst Andrew Charles says.

He downgraded Starbucks stock to Hold from Buy, but maintained a target of $90 for the price. Shares were down 1.9% at $84.36 in early afternoon on Thursday.

Charles acknowledged the potential for CEO Brian Niccol, the former chief executive of Chipotle Mexican Grill, to turn the chain around with a focus on operations and marketing. But he said the market may be overlooking challenges such as higher labor costs, cautious consumer sentiment, and increasing competition in the industry.

In 2008 and 2020, two previous periods of economic turmoil, Starbucks underperformed other restaurants and fast-food companies, wrote Charles. And he said proprietary data from TD Cowen suggest that consumers' perceptions of value and quality for Starbucks are declining relative to its peers. That means customers who visit Starbucks at least once a week are stopping in less often, he said.

The company had no immediate comment.

For the three years from 2026 through 2028, Charles expects Starbucks' North America same-store sales growth to come in at an annual average of 3.5%, below the Wall Street consensus forecast of 4%.

What's more, Charles believes Niccol's turnaround efforts will require higher operating expenses than Wall Street expected. His outlook for earnings in the next three years is "materially below consensus," he said. For 2026, for example, he expects the chain to post $2.80 in earnings per share, while the Street consensus is $3.00.

"We see risk that the company holding back price and adding labor hours signals Starbucks over-earned in the 2-3 years post-Covid," wrote Charles, "In our view, the company is still settling into a new base of earnings that differs from consensus."

Wall Street analysts are split on how they feel about Starbucks. Among the 36 analysts polled by FactSet that cover Starbucks stock, 15 rate it at Buy or the equivalent. Nineteen rate it at Hold and two rate the stock as a Sell or the equivalent. The average price target is nearly $90, implying a gain of about 5%.

Starbucks stock has fallen 8.5% so far this year, while the S&P 500 has edged up 0.5%.

Write to Evie Liu at evie.liu@barrons.com

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May 29, 2025 13:34 ET (17:34 GMT)

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