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Investing.com - BMO Capital maintained its Outperform rating and $115.00 price target on Starbucks (NASDAQ:SBUX) following the coffee chain’s joint venture announcement with Boyu Capital for its China business. The target represents a 42% upside from the current price of $80.96, with Starbucks currently trading near its 52-week low of $75.50.
Starbucks disclosed after market close that Boyu Capital will acquire a 60% stake in its China operations based on a $4 billion enterprise value, which implies approximately 7-8x EV/EBITDA multiple. Under the agreement, Starbucks will license its brand and intellectual property to Boyu. This valuation multiple is notably lower than Starbucks’ overall EV/EBITDA of 20.66, according to InvestingPro data.
The transaction aligns with Starbucks’ previously stated intention to seek partners for its China business, making the announcement consistent with the company’s strategic direction.
BMO Capital views the deal as more significant strategically than financially, noting it helps de-risk Starbucks from China market volatility, creates a less capital-intensive business model, and allows greater focus on U.S. operations.
The financial impact appears manageable, with BMO estimating slight earnings per share dilution if transaction proceeds are directed toward share repurchases.
In other recent news, Starbucks has announced a significant shift in its China operations by selling a 60% stake to Boyu Capital, valuing the business at over $13 billion. The agreement forms a joint venture where Starbucks will retain a 40% interest, continuing to own and license its brand and intellectual property in China. This strategic move comes amid other developments, including Stifel reiterating its Buy rating on Starbucks, setting a price target of $105.00, following positive global comparable sales in the fourth quarter.
BMO Capital also maintained its Outperform rating with a $115.00 price target, despite Starbucks missing its fourth-quarter earnings estimate, reporting earnings per share of $0.52 against the expected $0.56. RBC Capital, however, lowered its price target to $100 from $110, citing uncertainty around cost savings, though it maintained an Outperform rating. Despite these mixed signals, Starbucks has shown positive transaction trends, particularly in the U.S. market, which have continued to improve. These developments highlight a period of strategic adjustments and varied analyst perspectives for the coffee chain.
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