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Starbucks stock gets Buy rating from Goldman Sachs, cites growth potential

EditorEmilio Ghigini
Published 06/13/2024, 06:54 PM
© Reuters.

On Thursday, Goldman Sachs initiated coverage on Starbucks Corporation (NASDAQ:SBUX) stock with a Buy rating and a price target of $110.00. The firm highlighted the coffee giant's potential for a favorable risk-reward scenario, noting that the stock is currently trading at a standard deviation below its historical average price-to-earnings (P/E) and enterprise value-to-EBITDA (EV/EBITDA) ratios since 2021.

Starbucks has experienced a significant recalibration of consensus expectations following its fiscal second quarter 2024 results. However, Goldman Sachs pointed to early signs of improvement in customer visitation data from April to May, which supports the firm's positive outlook. The analysis suggests that there is an attractive entry point for investors considering the expected return to double-digit EBITDA and EPS growth in the fiscal year 2025.

According to the investment bank, their bear and bull case analysis, which incorporates variables such as North America sales fluctuations and historical EV/EBITDA ranges, indicates a potential variance of -28% to 75% compared to the current share price of Starbucks. This range represents the potential downside and upside risks for the stock based on the identified parameters.

The firm's coverage initiation and price target reflect a confidence in Starbucks' ability to navigate through the current market conditions and capitalize on its growth trajectory.

With the stock trading below its historical valuation multiples, Goldman Sachs sees an opportunity for investors amidst the company's anticipated financial performance improvements.

Starbucks' future growth prospects, as outlined by Goldman Sachs, suggest that the company is positioned to achieve significant earnings growth in the coming fiscal year. The investment firm's analysis presents a case for potential gains in Starbucks' stock value, offering a perspective on the company's financial health and market position.

In other recent news, Zamp, a Brazilian restaurant chain operator, is set to acquire the rights to operate Starbucks in Brazil, alongside a number of the coffee giant's stores, for $22.7 million.

This acquisition is a part of a deal with SouthRock, the current owner of these rights and assets in Brazil. The exact number of Starbucks stores included in the purchase remains unspecified. Finalization of the agreement hinges on regulatory approval and a conclusive agreement with Starbucks.

Simultaneously, Starbucks has been engaging in discounting practices in China due to intensified competition. The company has been issuing more discount coupons to maintain its market presence, despite an 11% fall in same-store sales in the second quarter. Analysts suggest that Starbucks should continue to differentiate itself by offering a premium in-store experience and leading in innovation to stay competitive.

In recent analyst notes, UBS reaffirmed its Neutral rating on Starbucks, maintaining the company's price target at $85.00. Piper Sandler adjusted the share price target for Starbucks, reducing it to $85 from $88, while keeping a Neutral rating.

HSBC analyst Meredith (NYSE:MDP) Jensen adjusted the price target for Starbucks shares, reducing it to $84 from the previous $107 while keeping a Hold rating. These revisions follow recent discussions with Starbucks management and reflect the company's recent performance and forecasts.

InvestingPro Insights

Recent data from InvestingPro underscores the robust financial position of Starbucks Corporation (NASDAQ:SBUX). With a solid market capitalization of $89.91 billion, the company shows a commitment to shareholder returns, having raised its dividend for an impressive 14 consecutive years. This commitment is reflected in the current dividend yield of 2.87%, offering investors a steady income stream. Additionally, Starbucks operates with a moderate level of debt, which can be a reassuring sign for investors concerned about financial stability.

InvestingPro Tips highlight that while Starbucks is trading at a high P/E ratio of 21.84, indicating a premium compared to near-term earnings growth, the company remains a prominent player in the Hotels, Restaurants & Leisure industry. Analysts predict profitability for the year, backed by a strong track record of profitability over the last twelve months. For those looking to delve deeper into the company's performance and potential investment opportunities, InvestingPro offers additional tips and metrics. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover more than five additional InvestingPro Tips that could guide your investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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