(Bloomberg) -- Wall Street applauded when Starbucks Corp. named Brian Niccol to head a rebound effort. Three months later, the cheers are fading as Redburn Atlantic tells investors to dump the coffee chain’s shares.
Analysts led by Edward Lewis downgraded their rating on Starbucks to sell from neutral and cut their price target to $77 from $133, implying a 22% drop over the next 12 months from Tuesday’s close.
“The recovery will come at a cost not adequately reflected in consensus, in our view,” Lewis wrote in a Wednesday note. “In addition, with shares trading at an elevated forward P/E multiple, there is little room for error.”
Niccol unveiled his plan to turn Starbucks around after another disappointing earnings results in October. His strategy seeks to simplify menus, lower service times and return a human touch by writing customer names on coffee cups.
Costs have been “Starbucks’ Achilles’ heel since 2017,” where store operating expenses outpaced revenue growth annually, according to Lewis, adding that he sees a similar scenario playing out now.
Limited visibility after the company withdrew its fiscal year 2025 guidance is also a concern, Lewis said.
Starbucks shares surged 28% since Niccol’s appointment was announced in August. The stock had slumped more than 19% ahead of the move and was on track for it’s third straight annual decline before it rebounded into positive territory.
Niccol’s track record at Taco Bell Corp. and later at Chipotle Mexican Grill Inc., where he oversaw a dramatic turnaround, will buy him time to revitalize Starbucks, Lewis said. Still, Niccol inherits a company that has struggled to grow consistently, withdrawn long-term earnings guidance twice since 2020 and has posted three consecutive quarters of negative US comparable sales.
Redburn Atlantic is one of six firms tracked by Bloomberg that recommend selling Starbucks stock, up from three before Niccol’s recovery plan and its most recent earnings results.
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