11:39 AM EDT, 07/02/2024 (MT Newswires) -- Starbucks' ( SBUX ) recent stock underperformance comes as it faces traffic challenges that appear to be in early stages, Oppenheimer said in a note emailed Tuesday.

After attempting to identify an upgrade thesis with shares of the coffee chain down 13% since May versus a 9% improvement for the S&P 500, the brokerage said it decided to remain sidelined with a perform rating.

An upgrade would require "uncovering a reversal in earnings revisions that is primarily traffic driven," analysts Brian Bittner and Michael Tamas wrote. Starbucks' ( SBUX ) traffic headwinds "appear in early innings and more related to price/value concerns, competition, and operations than perceived," they said.

Oppenheimer lowered its 2024 earnings per share estimate to $3.56 from $3.60 and its 2025 target to $3.99 from $4.12. Those reductions put the analysts' forecast below the Street's view of $3.58 and $4.04, respectively, the report showed.

The brokerage said Wall Street's 13% EPS growth estimate for Starbucks ( SBUX ) in fiscal 2025, which kicks off in October, "tilts aggressively and forces us to remain cautious," Bittner and Tamas wrote.

Starbucks' ( SBUX ) fiscal second-quarter comparable store sales decline of 3% in North America and the US, driven by a 7% decrease in traffic, indicate that these challenges are far from over and create "elevated risk" to the consensus' positive traffic assumption for fiscal 2025, they said.

In China, where comparable sales tumbled 11% in the second quarter, Oppenheimer's analysis suggests the consumer environment has not improved and the promotional environment remains intense.

"Despite this, consensus assumes a multi-quarter improvement in China's (same store sales) with comps turning positive in the (December) quarter," the analysts said. With China accounting for 55% of international sales, the brokerage suggests that Starbucks' ( SBUX ) international division faces a "difficult setup" for upside.

Price: 76.69, Change: -0.44, Percent Change: -0.57