) --


(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.

Badishkanian said product innovation and in-store efficiencies will further help Starbucks grow its international presence, boosting same-store sales figures and better margins over the next several fiscal years.

Starbucks has already laid out plans to open 500 new stores before the end of its current fiscal year, 400 of which will be outside the U.S.

>>How Hot Is Starbucks?: China Watch Mail Bag

China will be Starbucks' biggest growth market over the next two years, and Middle Kingdom consumers can expect to choose from over 1,000 Starbucks locations in the country in the "near future," Starbucks China chief, Jinlong Wang, said recently.

Starbucks is not only looking to

expand in China, but also now plans to grow coffee beans in the country.

"Starbucks, for the first time in our 40-year history, is going to start growing coffee," CEO Howard Schultz said while on recent a trip to Beijing. "We're going to actually plant trees and grow coffee in China, in the Yunnan Province," he said, according to a



Badishkanian concluded that Starbucks is transitioning from a high growth company to a more mature company, which we feel should translate to more sustainable growth.

Starbucks shares traded 0.4% lower Monday morning to $32.65.

-- Written by Miriam Marcus Reimer in New York.

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