Brokers Suggest Investing in Starbucks (SBUX): Read This Before Placing a Bet

Core Viewpoint - The article discusses the reliability of brokerage recommendations, particularly focusing on Starbucks (SBUX), and highlights the disparity between average brokerage recommendations (ABR) and the Zacks Rank as indicators for investment decisions [1][4][12]. Brokerage Recommendations - Starbucks has an average brokerage recommendation (ABR) of 1.98, indicating a consensus between Strong Buy and Buy, based on recommendations from 31 brokerage firms [2]. - Out of the 31 recommendations, 16 are classified as Strong Buy and 2 as Buy, representing 51.6% and 6.5% of total recommendations respectively [2]. Limitations of Brokerage Recommendations - The article notes that relying solely on brokerage recommendations may not be wise, as studies indicate limited success in guiding investors towards stocks with the highest price increase potential [4]. - Analysts from brokerage firms often exhibit a strong positive bias due to vested interests, issuing five "Strong Buy" recommendations for every "Strong Sell" [5][9]. Zacks Rank vs. ABR - The Zacks Rank, which is based on earnings estimate revisions, is presented as a more reliable indicator of near-term stock performance compared to ABR, which is solely based on broker recommendations [7][10]. - The Zacks Rank is updated more frequently and reflects timely changes in earnings estimates, while ABR may not be current [11]. Current Earnings Estimates for Starbucks - The Zacks Consensus Estimate for Starbucks has declined by 1.3% over the past month to $3.11, indicating growing pessimism among analysts regarding the company's earnings prospects [12]. - This decline in consensus estimates has resulted in a Zacks Rank of 5 (Strong Sell) for Starbucks, suggesting caution despite the Buy-equivalent ABR [13].