Wall Street may be expecting too much from Starbucks

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Kevin Johnson of Starbucks speaks at the Annual Meeting of Shareholders at McCaw Hall in Seattle, Washington.

Shares of Starbucks fell less than 1 percent on Wednesday after a Wedbush analyst dimmed his view of the coffee chain and downgraded the stock, citing concerns over its valuation.

Nick Seytan cut his rating to neutral from outperform saying that recent visits to Starbucks cafes indicated there may be marginally weaker same-store sales growth in the back half of 2017 compared to Wall Street forecasts.

“Our recent checks of 5 percent of U.S. co-owned locations point to a modest acceleration in [the third quarter,]” he wrote in a research note Wednesday. “However, we expect overall [third-quarter] Americas comps in line to slightly below 5.3 percent consensus. We continue to model 5 percent for [the third quarter.]”

In the two previous quarters, Starbucks’ same-store sales failed to meet Wall Street expectations. However, the company said same-store sales would improve as the second quarter progressed, culminating with an expectation of 4 percent U.S. same-store sales growth in March, and further acceleration into April.

Seytan said that he expects the recent outperformance of the stock is due to these signs of improving trends in March and April.

“We believe Starbucks has the highest visibility into sustained annual mid-single digit comp growth and mid-to-high-teens EPS growth within the publicly-traded restaurant universe,” Seytan said. “Nevertheless, we believe these factors are fully incorporated in current valuation.”

He retained his stock price target of $65, which is about 7 percent above Tuesday’s closing level of $60.92. Starbucks shares are up 9 percent year-to-date, and just under 9 percent over the past 12 months.