Baird upgrades Starbucks rating after 1.5-year sales slump. Is the crisis over?

Starbucks shares could show growth in the coming quarters if the relaunch strategy implemented by new CEO Brian Niccol produces sustainable results, according to investment bank Baird. It recommended buying the coffee chain's shares, expecting them to rise 25%. At the same time, it has been showing a decline in comparable sales for the last six quarters, and the Jefferies analyst expects the negative trend to continue.

The situation at Starbucks could improve soon if the crisis strategy of new CEO Brian Niccol, appointed last year, works, according to Baird analyst David Tarantino. He raised his rating on the coffee chain's stock from neutral to "above market" and raised its target price from $100 to $115. That's 25% above Monday's closing level.

"We remain convinced that the relaunch strategy under new leadership will be effective and help transform Starbucks into a more sustainable company. We expect this to become increasingly evident in the coming quarters," Tarantino wrote in an Aug. 12 memo cited by CNBC. - Specific signals of improved financial performance should support positive investor expectations and justify higher valuation multiples as earnings recover."

Starbucks shares have been under pressure in recent weeks, losing more than 3% since the company released its second-quarter earnings in late July. The company reported its sixth consecutive decline in comparable sales, CNBC recalls. However, Niccol promised that Starbucks is "gaining momentum."

Shares of the coffee chain strengthened 2% to $93.6 on Tuesday. They have gained just 0.5% since the beginning of the year, while the broad S&P 500 index has added more than 8%.

Analyst Tarantino predicts that the company will begin to see a recovery in comparable sales in the U.S. in 2026. This should be facilitated by the launch of the Green Apron Service initiative, aimed at improving service quality and establishing "human contact" with customers, including through personalized drawings on glasses. Analyst Baird also expects the effect of product line expansion: the company is adding new beverages and updating its bakery display case.

"We now have more clarity on our workforce investment (about $500 million) and expect Starbucks to reveal details of the savings program in the coming quarters, such as at an investor meeting in early 2026," Tarantino wrote. He said it could involve cutting administrative costs, streamlining supply chains and reducing operating costs at the coffee shop level. He believes these measures could "move the company closer to its long-term goal of restoring operating margin to fiscal 2019 levels." At that time, it was 17%. This year, Starbucks expects an operating margin of 10.3%.

A team of Jefferies analysts led by Andy Barish downgraded Starbucks shares from Neutral to Underperform on July 17, calling the company's current valuation "unwarranted" and essentially recommending selling the securities. Jefferies cited risks to Wall Street's consensus forecast for Starbucks' third-quarter comparable sales. That forecast calls for a 2.2% year-over-year decline, or 20 basis points from the previous quarter. According to Barish, the actual decline could be deeper, up to 100 basis points.

"We believe expectations are again too far ahead of reality," Jefferies said in a note quoted by Barron's.

In general, Wall Street's assessments of Starbucks' prospects are divided: out of 39 analysts tracking the company's shares, 18 recommend keeping them in the portfolio, 17 recommend buying them. Skeptical experts, such as Jefferies, are in the minority: four of them advise to sell Starbucks securities, CNBC notes.

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