TD Cowen Maintains Buy Rating on Starbucks Stock, Highlights Potential for Earnings Recovery
TD Cowen has reaffirmed its positive rating on Starbucks (NASDAQ: SBUX), maintaining a “Buy” rating with a $90 price target, despite near-term challenges in operations and global markets. Analyst Andrew Charles praised the efforts of the new leadership, especially the role of CFO Cathy Smith in driving a comprehensive restructuring strategy and increasing transparency.
In a recent call with Wall Street analysts, CFO Cathy Smith emphasized the long-term goal of improving earnings before interest and taxes (EBIT) margins by reducing general and administrative expenses and optimizing operating efficiency. A key part of this strategy is the adoption of nontraditional budgeting, called “Zero-Based Budgeting,” which helps the company allocate resources more efficiently amid fluctuating consumer demand.
Starbucks is currently focusing on improving the customer experience, including speed of service and satisfaction, which it hopes will drive same-store sales. While the company has not yet provided a specific EBIT target for the near future, management has emphasized that positive internal metrics will be the foundation for sustainable financial improvement.
According to data from InvestingPro, Starbucks generated $36.35 billion in revenue over the past 12 months. However, 25 analysts have recently revised their earnings expectations downward due to concerns about rising labor costs and pressure from not raising prices aggressively. However, Charles remains confident in the “Back to Starbucks” strategy, saying it is the right move to rebuild the brand while maintaining a closer relationship with customers.
Notably, the company is also restructuring its business in China – a market with more than 7,750 Starbucks stores. Starbucks has reportedly begun approaching private equity funds to consider selling shares or restructuring assets, amid increasing competition from domestic coffee chains.
Despite facing many challenges, Starbucks has maintained its brand strength and global scale of operations. Moody’s recently downgraded its credit outlook from “Stable” to “Negative” due to shrinking profits, but maintained its Baa1 unsecured credit rating.
Other analysts such as RBC Capital Markets and Bernstein also maintained “Outperform” ratings on SBUX shares, with price targets of $95 and $90, respectively. They believe that heavy investments in improving the working environment and increasing working hours are necessary to strengthen the business foundation.
In addition, Starbucks is expanding its “Green Apron” program – an initiative aimed at training and developing frontline employees, helping to improve customer service quality. However, in the US, the company is still entangled in a number of labor disputes, with more than 50 stores participating in a strike related to the new uniform policy.
Investors are closely watching how Starbucks adjusts its operating model to adapt to current market conditions. A combination of improving operations, controlling costs and refreshing the customer experience is seen as key to the company restoring profit margins and achieving sustainable growth in the long term.
Starbucks’ current dividend yield of 2.82% continues to attract investors looking for recurring income. TD Cowen’s $90 price target adds to the confidence in SBUX’s recovery potential, given the volatile market.
Considering investing in SBUX?
InvestingPro currently offers 12 in-depth analysis and valuation metrics that provide a comprehensive assessment of the stock’s financial health and growth potential. In a volatile market, Starbucks remains one of the standouts that could deliver attractive returns if its turnaround strategy is successfully executed.