RBC downgrades Starbucks Corporation (SBUX.US) rating to "in line with the industry": Performance recovery has been overdrawn in advance, long-term high costs become profit killers.

RBC Capital Markets downgraded the rating of Starbucks Corporation (SBUX.US) from "outperform" to "in line with industry", and set a target price of $105.00, with a 52-week trading range of $75.50 to $104.82. Analyst Logan Reich pointed out that while Starbucks Corporation still shows resilience in revenue growth in the North American market and believes that the same-store sales growth target for fiscal year 2028 can be achieved, the scale of labor costs invested to turnaround the U.S. business has exceeded previous expectations and this investment shows long-term characteristics, leading to the company's risk-return profile becoming more balanced. The bank believes that Starbucks Corporation's continued investment in staffing and operational optimization, although necessary, will significantly suppress profit margin expansion in the short term, narrowing the profit margin for investors at the current price. From a valuation perspective, Starbucks Corporation's current stock price reflects the market's optimistic expectations for its performance recovery. The analyst emphasized that Starbucks Corporation's current forward price-to-earnings ratio is approaching the upper limit of its historical valuation range, largely limiting further upside potential for the stock price. In addition, Wall Street's expectations for Starbucks Corporation's same-store sales in North America and globally for fiscal years 2026, 2027, and 2028 are 3.6%, 3.5%, and 3.4% respectively, indicating that the company will face higher hurdles and challenges in providing market-surprising performance in the coming quarters. RBC's analysis reflects that after the previous rapid rebound, the market is reevaluating the cost-benefit ratio of Starbucks Corporation in its transformation phase. Despite the downgrade in rating, the recent major adjustments in Starbucks Corporation's business strategy are still the focus of the market. Under the leadership of CEO Brian Niccol, the company has launched the "Return to Starbucks Corporation" plan, aimed at regaining lost customers through menu simplification and enhanced store efficiency. Meanwhile, Starbucks Corporation is advancing its structural reorganization of its China business, planning to sell 60% of its equity in China to Bofu Capital and instead operate its over 8,000 stores in the Chinese market in a joint venture model. As the "one-for-two" stock split plan set to be implemented at the end of March approaches, investors are closely watching whether these strategic moves can effectively mitigate the negative impact of rising labor costs.