A new endorsement of Starbucks from a top Wall Street research firm doesn’t budge our skepticism about the coffee giant’s ability to deal with the multiple challenges holding back its stock. Goldman Sachs on Thursday initiated coverage of Club name Starbucks with a buy rating and a $100-per-share price target. That price target represents more than 25% upside to the prior session’s close. The analysts see signs of a bottom in the stock thanks to a new digital push to improve customer wait times on mobile orders — something Jim Cramer has been particularly worried about. The Goldman team thinks Starbucks’ current valuation of about 20 times forward earnings is “an attractive risk-reward opportunity,” citing expectations of sales momentum ahead. The analysts are modeling full-year fiscal 2024 through 2026 earnings-per-share above consensus estimates. Goldman believes the worst is behind Starbucks and investors should start to see improvement in the company’s third quarter. Jim said, however, that nothing in the Goldman note made him want to change his view. “We still have to wait,” he explained. Starbucks is still “very much in the penalty box,” he added. Starbucks rose 1% on Thursday to just over $80 per share. But the stock was still about $8 below where it was trading before it dropped nearly 16% on May 1 — the day after disastrous earnings. SBUX YTD mountain Starbucks YTD Everybody knew that Starbucks was going to miss when fiscal second-quarter results were released on April 30 after the closing bell. Jim had been saying it for weeks. But when the numbers actually hit, we realized the company was in much worse shape than we had anticipated. A steep decline in store traffic, an inability to meet consumer demand, and unaffordable prices were contributing factors. That night, we downgraded the stock to a 2 rating and cut our price target to $90 per share. The morning after earnings, Jim blasted Starbucks CEO Laxman Narasimhan in a CNBC interview. He questioned Narasimhan’s ability to right the ship. The CEO acknowledged some of the problems and offered an action plan. But he kept going back to the idea that the business foundation is “really strong.” Jim criticized Narasimhan for being Pollyanna and not recognizing the severity of the challenges. There are a lot of things going wrong for Starbucks right now including slow throughput, an industry term for the number of customers who can be served in a given period; underperforming drinks, such as its Oleato branded olive oil-infused coffee; tough competition from cheaper brands in China; and backlash over the incorrect perception that the company is taking sides in the Israeli-Hamas war. Despite Goldman’s optimism, we feel we have to wait a few more quarters to see whether management’s turnaround plans can translate into improved financials and an end to a series of disappointments. (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC…
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