Starbucks’ growth trends will not turnaround anytime soon after the company’s sales guidance reduction, according to Morgan Stanley.
The firm lowered its rating to equal-weight from overweight for Starbucks shares, citing the deteriorating sales growth in China and the U.S.
On Tuesday Starbucks lowered its global third-quarter same store sales growth forecast to 1 percent versus the previous forecast of 3 percent.
“Facing now what is clearly decelerating top-line in its two key markets, SBUX is now saddled with increased EPS risk and a poor recent track record of driving sales,” analyst John Glass said in a note to clients Wednesday. “We see this stock as range bound, at best, near-term as the catalyst for a US comp recovery remains elusive, offset by a valuation that has been compressing over the past 2+ years.”
Starbucks shares are down 3.9 percent in Wednesday’s premarket session.
Glass reduced his price target to $59 from $72 for Starbucks shares, representing 3 percent upside to Tuesday’s close.
The analyst noted how the company’s China same store sales growth is likely to be nearly flat in the third quarter versus 8 percent growth just three quarters ago.
The China sales “deceleration was a negative surprise, and believing in the long-term opportunity in China is important to the long-term thesis. There are some plausible partial explanations for this (a switch away from unsanctioned third party delivery; new arrangements to come by year’s end) but now this is show-me as well,” he said.
In a similar move, Telsey Advisory Group lowered its rating to market perform from outperform and reduced its price target to $60 from $70 for Starbucks shares Tuesday, predicting more mixed sale results in China.
— CNBC’s Michael Bloom contributed to this story.