Starbucks Receives Outperform Upgrade from Bernstein

Analysts at Bernstein have upgraded Starbucks to Outperform from Market Perform, driven by optimism over the company’s recent leadership change and its potential for operational enhancements.

The firm raised its price target for the stock from $92 to $115, demonstrating confidence in Starbucks’ capacity to generate future earnings growth despite current obstacles.

This upgrade follows the appointment of Brian Niccol as the new CEO of Starbucks, a change that has already increased investor confidence, leading to a 27% rise in share prices since the announcement. Bernstein expressed that Niccol is an ideal leader to steer the revitalization of Starbucks.

According to the firm, Niccol’s previous experience in turning around brands like Taco Bell and Chipotle positions him well to navigate Starbucks through its current phase of transformation.

Although a comprehensive turnaround will require time, Bernstein is optimistic that the stock could start benefiting ahead of full plan execution. The firm anticipates a shift towards balanced growth at Starbucks, emphasizing operational stability over aggressive expansion.

This strategy is expected to lead to more efficient decision-making and a reduction in general and administrative expenses, projected to decrease to historical lows of 6%. Bernstein also foresees a return to pre-COVID operating margin levels of around 18.5%.

Improvements in store operations, customer throughput, brand perception, and menu innovations are expected to boost traffic growth. Even with planned investments in labor and technology, operating margins are anticipated to achieve new heights by 2028 due to these efficiencies.

Despite recent stock price increases, Bernstein regards Starbucks as a compelling long-term investment, asserting that the valuation still presents an attractive entry point for long-term investors.