Starbucks Upgraded to Outperform on Sales Expectations

"We view early signs of [Starbucks'] U.S. recovery as durable," Cowen said, upgrading the stock to outperform and lifting its price target 29%.
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Starbucks  (SBUX) - Get Report shares rose Wednesday after Cowen analyst Andrew Charles upgraded the coffee-bar chain’s stock to outperform from market perform and raised his share-price target 29% to $99 from $77.

“We view early signs of the U.S. recovery as durable, aided by broadening digital access through expanded pay options for loyalty and 23% of U.S. stores adding curbside pickup,” he wrote in a commentary.

“Covid-19 presents new efficiency opportunities [to drive] 15% earnings-per-share growth for 2022-2023, he said. The shares risk/reward balance is "compelling, as our bull/bear cases suggest 2-to-1 upside/downside ratio.”

The Seattle chain's stock recently traded at $86.72, up 2.3%. The shares have eased 1% this year. The new price target indicates 17% upside from Tuesday's close at $84.80.

“We view Americas same-store sales as the key metric for SBUX, given a 0.8 correlation with SBUX's forward price-to-earnings multiple pre-covid-19,” Charles said.

“We believe Starbucks is pursuing the right structural drivers to help transcend displaced morning routines, including broadening payment options beyond a Starbucks card for customers to join My Starbucks Rewards loyalty program.”

That also includes the additional curbside-pickup capacity and “on-trend plant-based-menu innovation,” Charles said.

“This should help Starbucks extend the sales recovery and gives us confidence in potential upside to comps,” he said. 

Charles views Starbucks stock as “attractive on a total-shareholder-return basis, with room for multiple expansion.”

Starbucks said two weeks ago that comparable sales in the U.S. and China continued to improve in August, as the impact of coronavirus lockdowns eased in its two largest global markets.

In June the company introduced a breakfast sandwich made with Impossible Foods' plant-based sausage.