Markets & Finance

UBS Cuts Starbucks to Neutral


From Standard & Poor's Equity Research

UBS Financial downgraded Starbucks (SBUX) to neutral from buy, noting that the company's sales in June were disappointing.

Analyst David Palmer says Starbucks' June same-store sales (sss) were below his 8% estimate. He cut his 8% fourth quarter sss forecast to 6% due to a lower-than-expected boost from new Frappucino introductions. He keeps an 18 cents third quarter earnings per share (EPS) estimate and cuts his 18 cents fourth quarter EPS estimate to 17 cents. He thinks less EPS leverage in fiscal year 2007 vs. recent years is likely, with EPS growth moderating from 30%+ in fiscal year 2006 to around 25% in fiscal year 2007. He cites more China reinvestment and less lift from dairy costs. He also cut his $44 stock price target to $42.


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