On Wednesday, Bernstein analysts led by Danilo Gargiulo reaffirmed their Outperform rating on Starbucks Corporation shares (NASDAQ:SBUX) with a steady price target of $90.00. According to InvestingPro data, Starbucks currently trades at a high earnings multiple with a P/E ratio of 31.4, suggesting premium market valuation. The company maintains a market capitalization of approximately $99 billion and has demonstrated consistent dividend growth, raising payments for 15 consecutive years. The analysts provided an in-depth view on the potential financial impact of Starbucks’ evolving labor model. They projected that labor costs in the United States for fiscal years 2026 and 2027 could range between $9.6 billion and $10.2 billion. This estimate is approximately 4% higher than the consensus, factoring in slight improvements in labor productivity and a decrease in the average number of staff per store compared to fiscal year 2019.
The analysts expect Starbucks to expand its Green Apron program to 7,000 high-volume stores, which would result in a $2.5 billion investment in labor costs by fiscal year 2027. Of this amount, around $900 million is anticipated to be spent in fiscal year 2025, based on current expenditure trends. The company’s current financial position shows revenue of $36.3 billion in the last twelve months, with a gross profit margin of 25%. For deeper insights into Starbucks’ financial health and growth potential, InvestingPro offers comprehensive analysis through its Pro Research Report, available along with 12+ additional exclusive ProTips. Bernstein’s analysis suggests that while the new store profit and loss (P&L) will likely be more labor-intensive, the sales leverage break-even point for same-store sales (SSS) could be around 3%.
Starbucks’ strategic initiatives have been closely monitored by Bernstein, with the Green Apron program being a significant focus due to its potential to redefine the customer experience and operational efficiency at the coffee giant’s stores. The program’s investment is seen as a means to adapt to changing labor dynamics and to sustain the company’s competitive edge in the market.
The analysis by Bernstein is based on a bottom-up labor cost model, which indicates that the consensus might be underestimating the cost pressures faced by Starbucks in the U.S. market. Despite the anticipated increase in store operating expenses, the analysts believe that Starbucks is positioned to manage these changes effectively and maintain its profitability.
Investors and stakeholders in Starbucks Corporation are likely to keep a close watch on the company’s financial performance as it implements these labor initiatives and aims to balance increased costs with operational efficiency and sales growth. The Outperform rating and $90 price target by Bernstein reflect confidence in Starbucks’ ability to navigate these challenges successfully. InvestingPro data reveals that 25 analysts have recently revised their earnings expectations downward for the upcoming period, while the company’s analyst consensus recommendation stands at 2.29, with price targets ranging from $69 to $125 per share.
In other recent news, Starbucks Corporation’s financial outlook has shifted to negative, as reported by Moody’s Ratings. The agency affirmed all existing ratings but cited weakening profitability and credit metrics due to sales deleveraging and increased labor investments as part of Starbucks’ reinvention plan. This outlook adjustment comes amid recent earnings reports that showed mixed results. Stifel analysts lowered their price target for Starbucks from $103 to $92, maintaining a Buy rating, while BTIG reduced their target from $115 to $105, also keeping a Buy rating. JPMorgan followed suit, adjusting its target to $100 from $105, retaining an Overweight rating.
Starbucks’ recent earnings revealed weaker-than-expected North American comparable store sales and a decline in operating margins, prompting analysts to revise their expectations for the company’s financial performance. Despite these challenges, international markets, particularly China, showed positive transaction growth, offering some optimism. Starbucks is also facing labor-related issues, as hundreds of employees went on strike in response to a new dress code. These strikes, led by Starbucks Workers United, occurred at over 50 locations but reportedly did not significantly impact store operations nationwide.
In response to these developments, Starbucks is focusing on initiatives to enhance customer and employee experiences, such as the Green Apron service model, which aims to optimize labor and reduce wait times. However, analysts remain cautious about the near-term financial outlook, given the current consumer spending environment and ongoing reinvention strategies.
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