Starbucks earns a new positive rating as RBC starts coverage at buy

Investing.com — RBC Capital Markets started 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 that has faced several headwinds recently, many of which the company can control.”

“The company has an opportunity to meaningfully re-accelerate the business,” analyst Logan Reich added.

He believes that Starbucks’ US business, despite experiencing difficulties in fiscal year 2024, is poised for recovery under the guidance of new CEO Brian Niccols.

Reich suggests that the company can improve its customer experience by improving wait times and offering better value through pricing strategies. Investments in increasing store efficiency, such as implementing a four-minute wait time goal, are expected to be beneficial, even if they may dilute margins in the short term.

RBC anticipates that while Starbucks will need to make near-term investments to revitalize its business, these efforts could lead to faster-than-expected margin expansion in the second half of fiscal year 2025.

The firm points out that some investments were already underway and others may be temporary, which signals potential for a quicker return to growth.

Moreover, the coffeehouse operator’s supply chain and in-store savings of 250 basis points in fiscal year 2024 provide a buffer for further investments and might lead to consensus-beating results in 2026.

Looking beyond the US market, Reich remains positive about Starbucks’ long-term prospects in China.

Despite recent economic challenges, the analyst believes there is a significant opportunity for growth driven by urbanization, the expanding middle class, and increasing coffee consumption.

“We acknowledge the path forward will likely be volatile but believe the bar is low,” he continued. “Further, a partnership in China could reduce what’s been an overhang on the business which we think would be an incremental positive.”