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Luckin Coffee Shares Are Hot After Needham's Stock Price Boost

Luckin Coffee is percolating after a Needham analyst raised his price target on the Chinese beverage retailer to $40 from $27.

Luckin Coffee (LK) - Get Free Report shares were percolating Tuesday, soaring 16.3% to $36.47, after a Needham analyst raised his price target on the Chinese beverage retailer to $40 from $27.

In a note to investors, analyst Vincent Yu, who maintained his buy rating, cited the company's “new unmanned retail and tea partnership store initiatives,” which were announced last month.

The company said that Luckin Coffee Express smart unmanned coffee machines and Luckin Pop Mini terminals will cover locations including office buildings, campuses, airports and bus terminals.

Luckin Coffee shares took a beating last week, along with many other Chinese companies, due to concerns about the spread of the deadly coronavirus.

The stock price also suffered after an anonymous report received by short-seller Muddy Waters Research claimed the company was fabricating financial and operating figures.

Luckin Coffee issued a statement saying it "categorically denies all allegations" and called the report's methodology flawed.

Yu wrote that coronavirus, a respiratory illness, was “putting a damper” on the company's first-quarter results and said the coronavirus impact was “meaningful in January and will continue in February.”

He lowered the price target for the core business to $25 due to negative impact from the virus, but added $5 for the unmanned retail business and $10 for the tea business.

Yu reduced his first-quarter revenue estimate to RMB 1.7b from RMB 2.1b; roughly to $2.4 billion from $3 billion. He also reduced his 2020 estimate by 3.7% to RMB 13.4b.

China's National Health Commission has confirmed 427 deaths linked to the coronavirus, as well as more than 20,600 global cases, most of which remain within the boundaries of Huebi province, home to Wuhan, the city that is ground zero for the outbreak.

But the spread of the virus outside China's boundaries has slowed from late last week.