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Starbucks Expected to Return 27%: Analyst

SEATTLE ( TheStreet) -- Starbucks (SBUX - Get Report) coverage was initiated by analysts at Citi who set a $40 price target on the stock.

Citi analyst Gregory R. Badishkanian gave Starbucks a buy rating and expects the coffee shop chain to offer investors a total return of 27.3%, including expected share price return of 25.5% and an expected dividend yield of 1.8%. Estimates are based on Starbucks' Dec. 15 closing price of $31.87.

>>Kraft Seeks Injunction Against Starbucks

Badishkanian noted that Starbucks has room to continue growing in the U.S. market over the next few years. He expects the company's "strategy of being better, not just bigger" to boost same-store sales growth -- or sales at stores open at least one year, a closely watched metric in the restaurant industry -- in the mid-single digit range from fiscal 2011 through fiscal 2013. Coupled with Starbucks' ongoing effort to cut costs, domestic expansion should result in wider margins.

Citi's broker action followed the resumption of Starbucks coverage at Goldman Sachs. The firm donned the coffee shop powerhouse with a conviction buy list rating, setting a $44 price target.

Goldman said Starbucks has yet to reach a saturation point in the U.S. market , and the firm forecast healthy domestic new store growth that could extend through 2025.

The firm also said that Starbucks store traffic trends highly correlate with the labor market , and expectations for the labor market to pick up somewhat in 2011 should offer further improvement.

The analyst noted that Starbucks' consumer products group "has a unique opportunity to take Starbucks to another level" by leveraging its retail store model and selling its products through more distribution channels such as supermarkets, airports, vending machines and restaurants.
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