Markets & Finance

DB Alex. Brown Lowers Starbucks Opinion

Starbucks (SBUX) posted $0.16 Q2 earnings per share on a 6% same-store sales gain. The coffee retailer also lowered fiscal 2001 guidance. DB Alex. Brown downgraded its rating on the shares to buy from strong buy.

Analyst John Glass says he downgraded the shares given concerns of business cyclicality. He notes the traffic slowdown is widespread, and not confined to the West Coast, as originally thought. Glass says margins and EPS seem safe for the rest of the year, despite slowing comparisons. But, he adds margins are not sustainable over the long term. If comparison don't reaccelerate late in the fiscal year, Glass thinks EPS growth could slow to 20%-25% from the current 25%-30% rate. The analyst says he's still a believer in the stock, but he's also a realist: he cut his fiscal 2001 EPS estimate to $0.91.

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