Here’s what Wall Street is saying about Starbucks ahead of earnings

Starbucks (SBUX) is scheduled to report results of its fiscal third quarter after the market close on July 29, with a conference call scheduled for 4:15 pm ET. What to watch for:

GUIDANCE: While the company is not giving specific guidance for any quarter in fiscal 2025, Starbucks said during its Q2 earnings conference call that it expects its Q3 topline results to follow normal seasonality, adding that the company believes ther are “better measures than EPS” to track the progress it has made. Meanwhile, Wall Street expects the coffee giant to report Q3 EPS of 65c on revenue $9.31B.

JEFFERIES DOWNGRADE: Earlier this month, Jefferies analyst Andy Barish downgraded Starbucks to Underperform from Hold with an unchanged price target of $76. The stock has gotten ahead of “reasonable expectations for improving fundamentals,” the analyst told investors in a research note at the time. The firm said its credit and debit card data, as well as foot traffic and app data, suggest downside to Q3 and Q4 U.S. compare sales estimates. Starbucks’s “complex” people and operating issues could take a longer time than expected to make progress on, and the company’s investments are weighing on earnings, contends Jefferies.

MELIUS INITIATION: Melius Research rolled out coverage on 11 names in the restaurant group in July, arguing that restaurants are no longer competing just with each other, but with grocers and concipient stores for meal occasions. While the restaurant industry is structurally attractive, defending traffic share “is harder than ever,” the analyst tells investors in a research note. Melius favors companies with strong unit economics, disciplined growth and capital allocation, and long-term brand relevance. The firm put Sell ratings on McDonald’s (MCD) and Starbucks, Buy ratings on Yum! Brands (YUM), Texas Roadhouse (TXRH), Restaurant Brands (QSR) and Dutch Bros (BROS), and Hold ratings on Chipotle (CMG), Darden (DRI), Domino’s Pizza (DPZ), Cava Group (CAVA) and Wingstop (WING). Yum is the analyst’s top pick, due to its global scale and capital-light, franchise-led growth. Melius believes McDonald’s U.S. value perception has eroded while competition for everyday occasions is intensifying. For Starbucks, the firm believes the company’s pricing has outpaced the consumer experience and that its U.S. turnaround will take time.

PT CHANGES: A number of analysts have also changed their price targets on Starbucks ahead of the Q3 print, mostly bringing their targets higher. Most recently, BofA raised the firm’s price target on Starbucks to $110 from $101 and maintained a Buy rating on the shares. The firm fine-tuned estimates for 20-plus companies across its restaurant coverage and also adjusting selected price targets to reflect estimate and market multiple changes ahead of earnings from the group. Just a day earlier, however, Barclays cut its price target on Starbucks to $106 from $108 and reiterated an Overweight rating on the shares after it adjusted price targets in the restaurant group as part of a Q2 update. Comp sales reaccelerated through the quarter, led by value offers, with casual dining leading and quick service lagging, the analyst told investors in a research note.

Just a few days before that, Citi raised the firm’s price target on Starbucks to $100 from $95 and maintained a Neutral rating on the shares as part of a fiscal Q3 earnings preview. The firm believes the company is positioned tp report at least in-line U.S. same-store-sales. Additionally, Stifel analyst Chris O’Cull raised the firm’s price target on Starbucks to $105 from $92 and kept a Buy rating on the shares. With several reports indicating the company is in active talks with potential buyers of a stake in China, Stifel thinks management will provide an update on the company’s progress in identifying potential partners and its assessment of the core strategic challenges in the market, the analyst told investors in a research note. While the firm remains focused on the U.S. turnaround, securing a strategic partner with a strong track record in China could be well received, as it should enhance Starbucks’ ability to gain share in a growing market, Stifel said at the time.

CHINA: In early July, Bloomberg reported that Starbucks had been approached with proposals from prospective investors expressing interest in its China business, most of whom are interested in a controlling stake. The company is reviewing the proposals from prospective partners which include industry players and private equity firms, and shortlisting a group of potential investors for a next round of bidding, the report stated at the time. The news came weeks after Starbucks denied a Caixin report that the company was weighing a full sale of its China operations. “I can confirm Starbucks is not currently considering a full sale of its China operations,” a company spokesperson said in a statement.

Meanwhile, the Wall Street Journal’s Heather Haddon and Hannah Miao (LKNCY), China’s largest coffee chain, opened its first store in New York City less than 200 feet from a Starbucks. In China, Luckin Coffee overtook Starbucks in six years. With the company’s streamlined app, surplus of coupons, and timely alerts when the drink is ready for pickup, Luckin Coffee will likely prove as tough competition for Starbucks in the U.S., the Journal noted.