Starbucks Coverage Initiated by RBC Capital Markets

RBC Capital Markets has initiated research coverage on Starbucks (NASDAQ:SBUX) shares with an Outperform rating, setting a price target of $115.

The investment bank views Starbucks as one of the most recognized brands in the US, facing several controllable headwinds. Analyst Logan Reich stated, "The company has an opportunity to meaningfully re-accelerate the business."

Despite challenges faced in fiscal year 2024, Reich believes that Starbucks' US operations are positioned for recovery under new CEO Brian Niccols. He suggests that the brand can enhance customer experience by reducing wait times and implementing better pricing strategies.

Investing in store efficiency, with a goal of a four-minute wait time, is expected to be advantageous, even at the cost of short-term margin dilution. RBC forecasts that although Starbucks will need to implement near-term investments to rejuvenate its business, these efforts could accelerate margin expansion in the latter half of fiscal year 2025.

The firm notes that some improvements are already in progress, with potential temporary measures indicating a quick return to growth. Additionally, Starbucks' supply chain and in-store efficiency gains of 250 basis points in fiscal year 2024 could facilitate further investments and might result in exceeding consensus projections in 2026.

Turning to the international market, Reich expresses optimism about Starbucks' long-term potential in China. Despite recent economic challenges, he identifies significant growth opportunities driven by urbanization, an expanding middle class, and a rise in coffee consumption.

Reich concluded, "We acknowledge the path forward will likely be volatile but believe the bar is low. A partnership in China could eliminate what’s been an overhang on the business, which we think would be an incremental positive."