Why Is Coffee Chain Dutch Bros Stock Gaining Today?

Shares of Dutch Bros Inc BROS shares are trading higher after TD Cowen analyst Andrew Charles upgraded the stock from Hold to Buy and raised the price target from $33 to $46.

On Tuesday, Dutch Bros reported quarterly earnings of 9 cents per share which beat the analyst consensus estimate of 2 cents by 350%.

Quarterly sales clocked in at $275.1 million, beating the analyst consensus estimate of $254.5 million by 8.09% and representing a 39.46% increase over sales of $197.27 million from the same period last year.

In the analyst’s view, Dutch Bros is demonstrating traction with the turnaround that leads the analyst to believe 2024 sets up as a beat & raise year. 

According to the analyst, efforts with beverage innovation, more targeted offers for the Dutch Rewards loyalty program (2/3 of transactions) & paid advertising are paying off.

The analyst now models 2Q24-4Q24 same store sales of 4.5%, 3.5%, 3.0% from 2.7%, 2.2% & 1.8% versus. 2.9%, 2.2% & 1.5% consensus, respectively.

The analyst conservatively estimates a 3.5% mobile order contribution to 2025 comparable sales, using Starbucks Corporation‘s SBUX 2016 experience as an analog.

Following two consecutive years of deterioration in new store sales volumes for the class of 2022 and 2023 store openings, the analyst suggests a sequential improvement in sales volumes from 4Q23 to 1Q24.

The analyst models street-high 2024-26E adj. EBITDA of $215 million, $275 million & $350 million, which are 4%, 10% & 15% above consensus, respectively.

The shares present an asymmetric risk/reward given the upcoming launch of mobile ordering at 50%+ of locations by 2024-end that will drive same store sales upside in 2025 and perhaps 2026, said the analyst.

Price Action: BROS shares are trading higher by 7.8% at $35.37 at last check Friday.

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