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Lofty investor expectations for growth and a balanced risk-reward ratio make shares of Starbucks less compelling, according to RBC Capital Markets. The bank downgraded the coffee retailer to sector perform from outperform. Analyst Logan Reich’s $105 price target, left unchanged, point to 8% upside from Tuesday’s close. Reich believes Starbucks need to do more than he previously expected to turn around its U.S. business. He also pointed to a lack of visibility on Starbucks’ cost savings, and hence its margin improvements, as a headwind. “While we continue to believe there’s room for further [North America] top-line improvement and view FY28 [same-store sales] growth targets as achievable, investments required to drive the improvement are larger and more permanent than we previously thought and the path to margin improvement remains somewhat unclear,” he wrote. He added that investor top-line growth expectations remain too high, giving Starbucks less room to impress and deliver upside. “Given consistent incremental improvements in topline as management executes the turnaround strategy, we think investor expectations around continued improvement and solid execution are elevated,” Reich wrote. Shares of Starbucks have added 16% this year, although they are trading slightly below flat over the past 12 months. The analyst wrote that at its current levels, Starbucks stock does not appear attractive. SBUX YTD mountain SBUX year to date “Stock is trading at premium to historical averages. Modeling out P & L through FY35 suggests risk/reward is balanced at current levels,” he said.
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