Starbucks Turnaround Hype Clashes with Financial Reality

What happened

A recent MarketBeat article projects Starbucks' turnaround under CEO Brian Niccol will gain momentum in 2026, suggesting the stock is poised for a rebound. However, the DeepValue master report reveals severe financial deterioration, with FY25 operating margin halving to 7.9% and EPS plummeting to $1.63 amid restructuring charges. Although Q4 FY25 saw a modest +1% in global comps—the first positive in seven quarters—the report highlights a demanding valuation of 54x trailing earnings and elevated net debt/EBITDA at 4.35x. A free cash flow-based DCF points to intrinsic value near $29 per share, over 200% below the current price around $88, indicating significant overvaluation. This contrast underscores that early operational improvements are overshadowed by substantial economic and balance sheet risks, challenging the article's optimistic narrative.

Implication

The bullish article overlooks concrete financial weaknesses, such as margin compression and high debt, which could lead to further downside if the recovery stalls. With P/E and EV/EBITDA multiples reflecting optimistic expectations not yet supported by sustained performance, the stock remains vulnerable to disappointments. Key risks include labor unrest, weak non-Rewards traffic, and the need to restore mid-teens operating margins, all of which are unproven. Monitoring quarterly comps and debt metrics is critical, but current levels provide little cushion for error. Therefore, a prudent stance is to await more consistent evidence of financial and operational healing before considering a long-term position.

Thesis delta

The new article does not alter the STRONG SELL thesis, as it lacks substantive data to counter the financial concerns and overvaluation detailed in the DeepValue report. Instead, it echoes management optimism that has historically been overly optimistic, reinforcing the need for skepticism amid high execution and macro risks.