A new endorsement of Starbucks by a leading Wall Street research firm does not diminish our skepticism about the coffee giant's ability to handle the many challenges besetting its stock. Goldman Sachs started reporting on the club name Starbucks on Thursday with a buy rating and a price target of $100 per share. That price target represents an upside of more than 25% from the close of the previous session. The analysts see signs of a bottoming out in the stock price thanks to a new digital push to improve customer wait times for mobile orders – something Jim Cramer is particularly concerned about. The Goldman team thinks Starbucks' current valuation of about 20 times forward earnings is “an attractive risk-reward opportunity,” citing expectations of future sales momentum. The analysts model earnings per share for the entire fiscal year 2024 through 2026 above consensus estimates. Goldman believes the worst is behind Starbucks and that investors should see improvement in the company's third quarter. However, Jim said nothing in the Goldman note caused him to change his opinion. “We still have to wait,” he explained. Starbucks is still “very much in the box,” he added. Starbucks rose 1% to just over $80 per share on Thursday. But the stock was still about $8 lower than where it was trading before falling nearly 16% on May 1 – the day after the disastrous earnings report. SBUX YTD mountain Starbucks YTD Everyone knew that Starbucks would not make it when the results for the second quarter of the financial year were announced after the closing bell on April 30. Jim had been saying it for weeks. But when the numbers actually came out, we realized that the company was in much worse shape than we expected. A sharp decline in store traffic, the inability to meet consumer demand and unaffordable prices contributed to this. That evening, we downgraded the stock to a rating of 2 and lowered our price target to $90 per share. The morning after the earnings results, Starbucks CEO Jim Laxman criticized Narasimhan in a CNBC interview. He doubted Narasimhan's ability to right the ship. The CEO acknowledged some of the problems and offered an action plan. But he kept coming back to the idea that the company's foundation is “very strong.” Jim criticized Narasimhan for being Pollyanna and not recognizing the severity of the challenges. There are a lot of things going wrong at Starbucks right now, including slow throughput, an industry term for the number of customers it can serve in a given period; underperforming beverages, such as Oleato brand olive oil-infused coffee; stiff competition from cheaper brands in China; and opposing the false perception that the company is taking sides in the war between Israel and Hamas. Despite Goldman's optimism, we believe we'll have to wait a few more quarters to see if management's plans can translate into better financials and end a string of disappointments. (Jim Cramer's Charitable Trust is long SBUX. See here for a full list of the stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charity's portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. No fiduciary obligation or duty exists nor is it created by your receipt of any information provided in connection with the Investment Club. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A store of coffee shop chain Starbucks in the center of Amsterdam, where people sit inside and enjoy a cup of coffee after shopping in the café, while others walk by.
Nicolas Economou | Nurfoto | Getty Images
A new approval of Starbucks from a leading Wall Street research firm does not diminish our skepticism about the coffee giant's ability to deal with the many challenges holding back its stock price.
