Shares of Starbucks (SBUX) are in the spotlight after the company withdrew its guidance for the fiscal year 2020, and said that it preliminarily estimates second-quarter non-GAAP earnings per share to be 32c, lower by nearly a half compared with 60c in the second quarter of last year. Following the announcement, Bank of America analyst Gregory Francfort downgraded the stock to Neutral. More bullish on the name, Citi analyst Wendy Nicholson assumed coverage of Starbucks with a Buy rating as she believes the company's business will bounce back "in a big way over time."

PRELIMINARY RESULTS: Starbucks said in a letter to stakeholders that the company now estimates that the business disruption related to COVID-19 in China had an adverse impact to Starbucks GAAP and non-GAAP earnings per share for the second quarter in line with previous expectations, in the range of 15c-18c. "Starbucks preliminary estimates for Q2 FY20 GAAP and non-GAAP EPS are approximately 28c and 32c, respectively. These estimates reflect the impact of lost sales for the period as well as incremental expenses for partner wages and benefits, store operations and other activities related to the COVID-19 outbreak. This includes inventory write-offs, honoring supplier obligations, store safety-related items, asset impairments and preliminary estimates of certain government stimulus program benefits," the company said. 

"Given the dynamic nature of the COVID-19 crisis and how it is affecting our business globally, we are currently unable to estimate the full financial impacts beyond Q2 with reasonable accuracy; therefore, we are withdrawing our guidance for fiscal 2020 that we introduced on October 30, 2019, in conjunction with our fourth quarter and fiscal year-end 2019 earnings conference call," the coffee giant stated.

"Based on the late-quarter onset of COVID-19 impacts to our business results in the U.S. and other markets globally-and as the flow-through impact of lost sales in the U.S. is materially greater than the flow-through impact of lost sales in China-we expect the negative financial impacts to Q3 to be significantly greater than they were in Q2 and to extend into Q4. […] To further enhance our financial flexibility, we have also temporarily suspended our share repurchase program and are taking steps to defer capital expenditures and reduce discretionary spending. We do not expect to reduce our quarterly dividend," the company added.

MOVING TO THE SIDELINES: Following the announcement, Bank of America analyst Gregory Francfort downgraded Starbucks to Neutral from Buy with a price target of $73, up from $68. The analyst told investors that he believes risks are not fully priced into the shares and he expects significant economic pressure on the consumer as the restaurant industry reopens from the COVID-19 closures. With unemployment up substantially, more discretionary purchases will be scaled back, Francfort contends.

BUY STARBUCKS: Citi analyst Wendy Nicholson assumed coverage of Starbucks with a Buy rating and $82 price target, down from the firm's prior $105 target. There is no question that COVID-19 has meaningfully pressured Starbucks' business on a global basis in recent months, but it will bounce back "in a big way over time," Nicholson argued. Her peer at Jefferies also kept a Buy rating on the stock as he believes Starbucks’ business model is well-positioned to navigate the current challenges. Starbucks on Wednesday reported same-store-sales in the U.S. of down 3%, generally in line with consensus, as the COVID-19 impact in the last three weeks of March offset the "very strong" January to March 11 period, analyst Andy Barish highlighted in a research note to investors. Further, he noted that the company's China recovery is ongoing and should provide useful insight for Starbucks to manage the U.S. and other international businesses.

Meanwhile, JPMorgan analyst John Ivankoe raised his price target on Starbucks to $65 from $55 after the company reported that comps are leveling out at down 60% to down 70%, which is better than the down 80% he had previously modeled due to the COVID-19 pandemic. Starbucks also mentioned in its pre-announcement of some quarterly results that 58% of stores had drive-throughs, which is higher than he thought, and that 76% of those remain open. Ivankoe continues to believe it will take some time for full consumer frequency and spend per visit to return to their prior peaks and keeps a Neutral rating on Starbucks shares.

PRICE ACTION: In afternoon trading, shares of Starbucks gained over 2% to $73.23.