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Starbucks Gimpy over Cowen Downgrade

One Wall Street analyst predicts Starbucks (NASDAQ; SBUX) will have a rough go of it over the next two years, and blames craft coffee competition and questionable customer loyalty.

“We find competitive growth critical to monitor, as we believe this is largely responsible for Starbucks’ deteriorating beverage same-store sales,” wrote Cowen analyst Andrew Charles, who downgraded the coffee company to market perform from outperform on Friday.

The analyst also cut his price target on shares of the coffee giant to $65.00 from $68.00, implying 9% upside over the next 12 months

“The success of independent ready-to-drink coffee growth, within the context of declining Starbucks market share, may be a harbinger of the impact that smaller craft and artisanal coffee shops are having on Starbucks’ same-store sales,” Charles added. “Independents collectively remain small, but point to signs that these concepts are stealing the incremental traffic from Starbucks.”

Collective craft and independent coffee shops are growing at over two times the rate of Starbucks, Cowen found.

The company experienced an abnormally light period of gift card activations during the 2017 holiday season, he added, a leading indicator of the success of loyalty efforts for 2018. Cowen also observed decelerating growth in active rewards program members as evidenced by stagnant 10% to 20% growth in Starbucks card loads over the past four years.

The analyst reduced his same-store sales estimates in light of the new findings, cutting expectations to 2.3% from 2.8% in 2018, and to 3% from 4% in 2019.

Starbucks shares dipped 23 cents to $59.20 Friday.





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