Analyst Upgrades Starbucks Following Post-Earnings Sell-Off: 'Market Is Being Shortsighted'

Starbucks Corporation SBUX shares bounced back on Monday after the stock received a Wall Street upgrade by an analyst who believes the stock’s post-earnings sell-off is overdone.

The Analyst: Stephens analyst James Rutherford upgraded Starbucks from Equal Weight to Overweight and raised his price target from $118 to $130.

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The Thesis: In the upgrade note, Rutherford said the market is being too short-sighted when it comes to Starbucks’ raising employee wages. Rutherford said labor is currently the largest competitive advantage in the foodservice space.

“And by paying its employees more than the competition can/will pay, Starbucks is positioning itself to take market share for years,” he wrote.

For the fiscal fourth quarter, Starbucks reported global same-store sales growth of 17%, short of analyst estimates of 18.7%. U.S. comps were up 22%, missing analyst expectations of 23.7%.

Given accelerating U.S. and China comps, the Friday sell-off and support from the company’s $20 billion capital return program, Rutherford said investors should be buying last week’s earnings dip in Starbucks.

Stephens has raised its fiscal 2022 same-store sales growth estimate for Starbucks from 8% to 9%. Stephens also cut its adjusted fiscal 2022 EPS estimate from $3.72 to $3.42 compared to Starbucks’ guidance of at least $3.40.

Other Voices From The Street: Rutherford’s upgrade comes after several other Starbucks analysts weighed in on the earnings report last week.

Cowen analyst Andrew Charles said fiscal 2022 and 2023 EPS guidance was disappointing, but he believes it is likely conservative.

“We view guidance as a new floor for the company to beat, given SBUX is in a position of strength with pricing power and plans to front-end load ~$13B of share repurchases, aided by a $6.5B cash balance,” Charles wrote.

Bank of America analyst Sara Senatore said Starbucks' top-line growth is accelerating, and its EPS guidance is likely conservative.

“We view the U.S.’s 14% 2-yr stack in September as particularly impressive given mobility and work patterns are not yet back to normal,” Senatore wrote.

Wells Fargo analyst Jon Tower said the guidance is likely conservative, and Starbucks is sacrificing near-term EPS growth for longer-term gains.

“Eventually we see investors grasping the idea of lower NT numbers, but greater LT share gains, which should help shares grind higher over time,” Tower wrote.

Wedbush analyst Nick Setyan said Starbucks has an extremely achievable path to long-term growth that should meet or exceed its guidance.

“We also believe it is among the best-positioned companies within the publicly traded restaurants universe to manage through near-term margin headwinds towards medium-term margin normalization,” Setyan wrote.

Ratings And Price Targets:

• Cowen has an Outperform rating and a $125 target.
• Bank of America has a Buy rating and a $135 target.
• Wells Fargo has an Overweight rating and a $122 target.
• Wedbush has an Outperform rating and a $128 target.

Photo: Starbucks