Starbucks (SBUX) may save a few bucks over time amid its decision to phase out the majority of its disposable cups by 2025, but that’s not why one top Wall Street analyst thinks the stock is now a Buy.
JPMorgan restaurant analyst John Ivankoe lifted his rating Wednesday on Starbucks to Overweight (Buy equivalent) and slapped the stock with a $101 price target.
“Starbucks is the single most difficult (and tempting) stock call in our coverage. Valuation supports ‘more upside than downside,’ even on lower numbers, and while the catalyst for near-term movement is elusive, investors should allow for mean-reversion and valuation in itself to drive stock outperformance,” Ivankoe said.
Starbucks shares rose nearly 4% to $86.10 in pre-market trading Wednesday.
The upgrade comes as Starbucks stock has been akin to decaf coffee — boring and lacking life.
Shares of the coffee giant are down 23% in the past year, walloped by the one-two punch of pressured margins due to wage and food inflation and the trajectory of the China business during the country’s zero COVID policy.
Moves by Starbucks store workers to unionize also hasn’t helped investor appetite, as Yahoo Finance has reported.
The stock is down 28% year-to-date, as fresh lockdowns in China this month amid new COVID-19 outbreaks has weighed on market sentiment. Starbucks has more than 5,500 company stores in China.
Ivankoe thinks the China business will eventually stabilize for Starbucks, a factor the stock price isn’t reflecting.
“Getting timing right of China’s domestic policy is beyond our purview, but as the worlds No. 2 economy, we believe time will at least sort out COVID-era restrictions as it has nearly everywhere else in the world. Average ticket has driven comparable sales in the U.S. while average ticket was recently negative in China. Taking price to an increasingly broad and frequent customer base always poses a risk, but the brand should still maintain its ‘affordable luxury’ status,” said Ivankoe.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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