The coffee chain's shares were rising marginally to $72.88 on Friday after Wells Fargo Securities analyst Bonnie Herzog threw her hat into the ring, upgrading the stock to "outperform" from "market perform."
Herzog said the stock has upside that's not being reflected currently, from its innovative food and beverage offerings to the company's digital retail capabilities. Following meetings with management, she came away feeling more positive on the company. She raised her price target range by $13 to a range of $87-$89.
"Overall, we have more conviction that SBUX's increased focus and discipline will propel the company into a new era of faster growth and innovation," Herzog writes in a note to clients. "Further, we continue to be impressed with: (1) SBUX's strong execution of multiple initiatives in the U.S., (2) its tremendous potential to become an international powerhouse, (3)its impressive loyalty programs and digital offerings, and (4) its long runway for growth in (consumer packaged goods) both in the U.S. and internationally where we believe it's just getting started."
Herzog especially pointed Starbucks' experimentation within the beverage area with its new "handcrafted cold carbonated beverages, which should be rolled out to one-third of its stores this summer," according to the note.
Several things in the Starbucks' pipeline are likely to pay off over the next couple of years, including "further leveraging of its Teavana [and] Evolution Fresh, new execution of brewed coffee offering, handcrafted beverages, new food offerings, Refreshers, and its single-serve portfolio," the Wells Fargo note said. "Bottom line, we are optimistic that SBUX's new food and beverage offerings will be the single largest driver of comps in the next 2-3 years." And as for its mobile/digital offerings, here too the company has tons of potential, Herzog writes. "As SBUX grows these digital/mobile platforms this should: (1) benefit SBUX's own core business and (2)enable it to leverage these assets outside the 'Starbucks ecosystem,' perhaps becoming the leading standard for retail mobile payments. Bottom line, SBUX is on the forefront of retail digital innovation, which we don't believe is reflected in its current valuation."
--Written by Laurie Kulikowski in New York. Follow @LKulikowski