Bright and early this morning, Bank of America lowered its rating on Starbucks to sell from neutral, fearing slower growth and a variety of operating challenges. The broker suspects that the coffee chain faces slowing same-store sales growth, increased competition, margin pressures, and a slowdown in consumer spending. The firm cut its target profit for SBUX to $23 from $27. Bank of America did reiterate that Starbucks is a still great brand and should continue to build, even if its growth pace is below historical levels.
And in other news, SBUX announced that it will expand its relationship with PepsiCo (PEP) beyond North America, making Starbucks ready-to-drink beverages such as Frappuccinos available in China. Currently, there are 540 Starbucks stores located in greater China, and this new venture will bring familiar beverages into grocery and convenience stores served by Pepsi.
Currently, SBUX sells ready-to-drink products in South Korea, Japan, and Taiwan through other distribution relationships. The expanded deal with Pepsi will not impact service to these 3 regions.