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The news at Starbucks (NASDAQ: SBUX) was good yesterday, until the market closed. Then S&P hit Starbucks with a downgrade. And, that won't help the shares if they are going to stage any sustained rally.
According to the AP, "Standard&Poor's Ratings Services said Monday it revised its outlook on Seattle-based Starbucks Corp. to negative from stable following weaker operating performance in the company's fiscal first-quarter which ended in December.." S&P also cut its short-term rating on SBUX debt.
Since S&P is carefully followed among institutional investors, their rating is likely to offset any excitement about the coffee company's new value meal which combines coffee and a breakfast item for $3.95. One of the concerns about the new offering is whether Starbucks can make any money on it. With high real estate costs, high commodities costs, and a relatively expensive employee base, the $3.95 play may be a "loss leader". If so, and Starbucks customers do not step up to its more expensive products, the company may just be increasing its cost of goods for the next quarter.
S&P won't buy the $3.95 menu. And, that could cause a dip and the open of trading and cap the stock for a few weeks.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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