RBC Downgrades Starbucks (SBUX.US) to "In Line With Peers": Earnings Recovery Already Priced In, Long-Term High Costs Remain Profit Killer

CITIC Finance APP learned that RBC Capital Markets has downgraded Starbucks (SBUX.US) from “Outperform” to “Market Perform” and set a target price of $105.00. Its 52-week trading range is $75.50 to $104.82. Analyst Logan Reich noted that although Starbucks’ revenue growth in North America remains resilient and the company believes it can achieve its same-store sales growth target for fiscal 2028, the labor costs invested to turn around its U.S. business have exceeded previous expectations. Since this investment is long-term, the company’s current risk-reward profile has become more balanced. RBC believes that ongoing investments in staffing and operational optimization are necessary but will significantly constrain profit margin expansion in the short term, narrowing investors’ profit potential at current prices.

From a valuation perspective, Starbucks’ current stock price already reflects the market’s optimistic expectations for its earnings recovery. The analyst emphasized that Starbucks’ current forward P/E ratio is close to the upper limit of its historical valuation range, which largely limits further upside potential.

Additionally, Wall Street’s expectations for North American and global same-store sales in fiscal 2026, 2027, and 2028 are 3.6%, 3.5%, and 3.4%, respectively. This means that if the company wants to deliver surprising performance in the coming quarters, it will face higher hurdles and challenges. RBC’s analysis indicates that after a rapid rebound earlier, the market is reassessing Starbucks’ cost-benefit ratio during its transformation phase.

Despite the downgrade, Starbucks’ recent major strategic adjustments remain a focus of market attention. Under CEO Brian Niccol’s leadership, the company has launched the “Return to Starbucks” plan, aiming to regain lost customers by simplifying the menu and improving store efficiency.

Meanwhile, Starbucks is pushing forward with a structural restructuring of its China business, planning to sell a 60% stake to Boyu Capital and operate its over 8,000 stores in China through a joint venture.

As the “split and double” stock split plan scheduled for the end of March approaches, investors are closely watching whether these strategic moves can effectively offset the negative impact of rising labor costs.