Starbucks stock (SBUX) has fallen out of favor with investors.
Shares of the coffee-selling powerhouse are down 20% in the past year, according to Yahoo Finance Plus data, badly lagging the S&P 500's 14% gain. McCafé coffee seller McDonald's has seen its stock rise 6% in the past year, while Restaurant Brands (which owns coffee chain Tim Horton's) shares are down 10%.
Jefferies analyst Andy Barish in a new note on Wednesday points to three things holding back shares of Starbucks.
"The factors weighing on the stock include: (1) unionization activities at Starbucks stores; (2) backlash around pricing increases in China/Omicron restrictions; and (3) still some overhang from the fiscal year 2022 guidance reductions on the 2/1/22 1Q earnings call," Barish explained.
To be sure, one man at Starbucks will be looking to regain the confidence of investors in the weeks ahead.
Starbucks said a week ago that its visionary founder and former CEO Howard Schultz will assume the top post on an interim basis when current CEO Kevin Johnson retires on April 4.
Schultz previously served as Starbucks CEO from 1986 to 2000 and then returned to the helm of the company from 2008 to 2017.
The master orator re-enters the Starbucks C-suite at a much different time for the brand than when he left it, which helps to explain why the stock has been in the dumps.
The company is battling surging inflation for everything from food to worker wages as the economy kicks into gear from the pandemic.
Meanwhile, Starbucks' more than 5,500 China stores are at risk for a sales slowdown this year as COVID-19 resurfaces in China and the country moves quickly to impose new lockdowns.
But no other issue is bigger on Schultz's plate than the union movement well underway. If it continues to gain traction, it could dramatically alter Starbuck's margin structure — among other factors.
In late February, baristas at a Starbucks cafe in Mesa, Arizona, became the third store to vote in favor of union representation, reports Yahoo Finance's Dani Romero. And on Tuesday, a restaurant in Starbucks own backyard of Seattle voted unanimously to unionize.
More than 100 locations across 26 states have filed a petition for union elections since the first three Buffalo-area stores moved for a union vote in late 2021.
Jefferies' Barish, however, thinks a lot of these factors are now priced into Starbucks shares. Barish points to attractive valuation on stocks (chart above) relative to historical norms.
"Starbucks is in the early stages of returning $20 billion to shareholders over the next few years in buyback (potentially up to 10% of shares outstanding) and dividends. This comes at a time when the stock has traded to ~15x fiscal year 2023 estimated EV/EBITDA and 22x forward price-to-earnings, which we believe to be a very attractive entry point. We expect improving momentum in the U.S. and China predicated on a powerful and trusted brand, and in our view, the long-term framework should prove realistic and drive best-in-class total shareholder returns," Barish.
Barish held at a Buy rating on Starbucks with a $130 price target. Shares fell slightly Wednesday to $86.