Wall Street Analysts Think Starbucks (SBUX) Is a Good Investment: Is It?

Core Viewpoint - The article discusses the reliability of Wall Street analysts' recommendations, particularly focusing on Starbucks (SBUX), and highlights the disparity between brokerage recommendations and actual stock performance [1][3]. Summary by Sections Brokerage Recommendations - Starbucks has an average brokerage recommendation (ABR) of 1.98, indicating a consensus between Strong Buy and Buy, based on 30 brokerage firms' recommendations [2]. - Out of the 30 recommendations, 16 are Strong Buy and 1 is Buy, which accounts for 53.3% and 3.3% of all recommendations respectively [2]. Reliability of Recommendations - Despite the positive ABR, relying solely on this information for investment decisions may not be advisable, as studies show brokerage recommendations often fail to guide investors effectively [3]. - Analysts from brokerage firms tend to exhibit a strong positive bias in their ratings, with five "Strong Buy" recommendations for every "Strong Sell" [4]. Alignment of Interests - The interests of brokerage firms may not align with those of retail investors, leading to a lack of insight into future stock price movements [5]. - It is suggested that investors should use brokerage recommendations to validate their own analyses or utilize more reliable tools like the Zacks Rank [5][6]. Zacks Rank vs. ABR - Zacks Rank is a proprietary stock rating tool that categorizes stocks from Strong Buy to Strong Sell based on earnings estimate revisions, which is a different measure from ABR [7]. - The Zacks Rank is based on quantitative models and is more timely in reflecting changes in earnings estimates compared to the potentially outdated ABR [10]. Current Earnings Estimates for Starbucks - The Zacks Consensus Estimate for Starbucks has declined by 18.7% over the past month to $3.15, indicating growing pessimism among analysts regarding the company's earnings prospects [11]. - This decline in consensus estimates has resulted in a Zacks Rank of 5 (Strong Sell) for Starbucks, suggesting caution despite the Buy-equivalent ABR [12].