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Starbucks Initiated Overweight on Strong Fundamentals

Investors "underappreciate the pliability of Starbucks' business model,' says Wells Fargo analyst Jon Tower, who initiated the shares overweight.
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Starbucks  (SBUX) - Get Starbucks Corporation Report shares were initiated overweight at Wells Fargo, which set a $92 price target on the giant coffee-bar chain.

Wells Fargo analyst Jon Tower says the company can overcome the scourge of the coronavirus pandemic, which has kept customers away.

"Investors currently underappreciate the pliability of Starbucks's business model and sustainability of long-term sales drivers in the presence of temporary disruptions of the business related to covid-19," he wrote in a commentary cited by Dow Jones.

Tower pointed to Starbucks’s successful operating model and strong balance sheet, which "will allow management to quickly return the company to its previously stated long-term growth targets."

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The Seattle coffee-bar operator's stock isn’t getting enough credit for that, and analysts' earnings forecast for fiscal 2021 might be too low, Tower said.

He is impressed with Starbucks’s technological prowess, such as its digital data accumulation and its personalized marketing. So the company can meet consumer demand, even if demands change, he says.

Starbucks's store base also gives it a leg up, he said. The bountiful locations mean consumers are rarely far away, whether at work or home. The company can add suburban locations and increase drive-through options, Tower said.

Last month, Starbucks said the coronavirus pandemic would slash revenue by $3 billion to $3.2 billion for the fiscal third quarter ended in June. And it reported that U.S. same-store sales fell 43% in May from a year earlier.

Starbucks shares at last check traded at $73.91, down 0.3%. They have dropped 16% year to date.