Starbucks (SBUX) shares extended declines Tuesday as analysts reacted to the group's decision to suspend share buybacks under interim CEO Howard Schultz as the world's biggest coffee chain seeks to repair relations with its near 250,000 U.S. workforce.
Wedbush analyst Nick Setyan lowered his rating on the group to "neutral" from "outperform", while slashing his price target by $14 to $91 a share, following a late Sunday move by Schultz to suspend share buybacks, which Steyan thinks could be a precursor to 'meaningful' investments that may also put the group's near-term earnings growth estimate at risk.
BMO Capital analyst Andrew Strelzik followed suit, lowering his price target to $115, while holding his "outperform" rating in place, citing the "surprise" move from Schultz and its likely impact on Starbucks' earnings.
"While the move is a surprise, we do not believe it is indicative of meaningful long-term fundamental issues, but rather a reprioritization of resources as Mr. Schultz works to improve employee relations," Strelzik said. "We remove share repurchases from our forward estimates and lower our target to $115, but believe risk/reward skews favorably and remain positive on longer-term fundamentals."
"Starbucks has the resources to make incremental investments in employees/ stores and repurchase shares," he added. "However, with improving employee relations a focus, incrementally shifting capital resources from buybacks to employee-related spending makes a statement to the organization of its importance."
Starbucks shares were marked 3.5% lower in late morning trading Tuesday to change hands at $85.06 each, a move that would extend the stock's year-to-date decline to around 27.2%.
Schultz said late Sunday that cash spent on buybacks would be better directed towards "investing more into our people and our stores", adding it is the "only way to create long-term value for all stakeholders."
“Our vision is to once again reimagine a first-of-a-kind for-purpose company in which the value we create for each of us as partners, for each of us as customers, for our communities, for the planet, for shareholders — comes because our company is designed to share success with each of us and for the collective success of all our stakeholders,” Schultz wrote in a letter to employees.
The move could be a response to recent efforts by Starbucks employees to unionize, following successful votes in 10 U.S. locations and petitions for ballots in at least 170 others.
Starbucks lowered its 2022 profit guidance last month, and said it would begin hiking prices across its food and beverage menu, amid the ongoing hit to input costs from supply chain disruptions and slowing sales in China.
The group posted weaker-than-expected earnings of 72 cents per share, missing Street forecasts by 8 cents, even as sales rose 19% to $8.1 billion.
Sales in China, however, its most important market outside of the United States, fell 14% on a like-for-like basis amid Covid-linked disruptions in the world's second-largest economy.
