Wolfe Research on Monday changed its view on Starbucks, moving the stock to Peer Perform from Outperform. In a note accompanying the rating change, analyst Margaret-May Binshtok emphasized that the company appears to be only at the "early stages of a multi-year turnaround" and that execution risk remains high.
Binshtok characterized the effort as just getting started, saying "the beans are just hitting the grinder in a multi-year turnaround," and acknowledged that there are "green shoots emerging." Still, Wolfe is asking for clearer proof of persistent execution, particularly in the face of an "increasingly competitive coffee landscape."
The brokerage said Starbucks' target for 2028 comparable-store sales of 3 percent or more "could be reasonable" given the presence of new growth levers and a softened baseline after years of traffic and share loss. However, Wolfe warned that a more intense competitive environment - driven by high-growth smaller peers taking share - "could cap the comp recovery and constrain pricing power, even with multiple levers in play."
Wolfe's proprietary traffic analysis produced some evidence of traffic deterioration when high-growth rivals such as Dutch Bros and 7 Brew opened nearby, a finding the note highlighted as a potential headwind for recovery in customer counts.
Margins were flagged as an additional pressure point. The company’s investments tied to its "Back to Starbucks" plan, especially incremental labor spending, are expected to "put pressure on margins in the near term." Wolfe said those investments are likely to leave profitability "structurally below peak F'2019 levels."
Against these headwinds, Wolfe questioned whether Starbucks' premium valuation is justified, arguing that much of the potential upside from a turnaround appears already priced into the multiple. The firm said it is "looking for signs of a sustainable turnaround," but for the time being views the risk-reward profile as fairly balanced.
Implications for markets and sectors
- Consumer discretionary and restaurant sectors may be affected as competition among specialty coffee operators intensifies.
- Retail and foodservice margins could come under pressure where labor-led investments are being made to restore traffic and sales.