Starbucks (NASDAQ:SBUX) was lifted to Overweight from Equal-Weight at Morgan Stanley on Tuesday, with analysts raising the price target to $120 from $112 per share.
Analysts told investors that after recent weakness driven by real headwinds across Starbucks' global business, the bank sees an interesting risk-reward skew here.
"Out of consensus, weak sentiment, softer data trends, challenging commentary (including at our own conference last month), near-term earnings risk, China and Middle East exposure — these legitimate headwinds have brought SBUX's stock under substantial pressure after a constructive 4Q23 and investor day," analysts explained.
"But we'd rather wade into the controversy perhaps somewhat early, and look beyond the current quarter, as these 'penalty box' periods can be interesting entry points if one believes, as we do, that there are catalysts over the medium to long term and that the business is not structurally broken," they added.
Morgan Stanley also noted that SBUX is one of the few companies they cover that they consider to still be under-earning compared to its potential, while they also point to the fact it "has a history of working its way out of tough spots."
There are several ways that could be done, and we don't see earnings risk consistent with what's being priced into the stock today," concluded analysts.