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Takeaway: Does a negative view on WFM heed caution on SBUX?

It was not too long ago that the success of Starbucks and Whole Foods Market was linked to the “higher end” consumer, particularly when compared to their counterparts McDonald’s and Walmart.  Accordingly, both SBUX and WFM have been strong performers, as the “higher end consumer” has proven to be much more resilient in a stagnant economy than others.

THE SBUX-WFM CONNECTION - link

With another downgrade today, the street has turned decidedly negative on WFM.  We offer no opinion on the stock at this time, but a negative outlook could suggest that “higher end” consumers are starting to feel the pinch.  If this plays out and WFM sees same-store sales growth begin to slow, we have reason to believe the same could happen at SBUX.

The tepid jobs number reported earlier today is also concerning and, on the margin, bearish for SBUX.  We continue to believe street estimates are too high for SBUX and with 78% of analysts having a “buy” rating on the stock (versus only 50% for WFM), sentiment could be peaking.  After being one of the biggest fans of SBUX over the past 5 years, we see plenty of reason to be cautious on the stock in the early stages of 2014.

THE SBUX-WFM CONNECTION - SBUX EEEG

 

THE SBUX-WFM CONNECTION - SBUX ANALYST

 

THE SBUX-WFM CONNECTION - WFM EEEG

 

THE SBUX-WFM CONNECTION - WFM ANALYST

Feel free to call with questions.

Howard Penney

Managing Director