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On Monday, BMO Capital Markets adjusted its outlook on Starbucks Corporation (NASDAQ:SBUX), elevating the coffee giant's price target from $100.00 to $110.00, while maintaining an Outperform rating on the shares. The firm's analysis drew parallels between the early period of Brian Niccol's leadership at Chipotle Mexican Grill (NYSE:CMG) and the potential early actions at Starbucks. BMO Capital anticipates that Starbucks may experience a positive catalyst cycle stemming from the communication and implementation of strategic priorities.
The firm's revision of the price target to $110 reflects a heightened optimism for Starbucks's growth trajectory over the medium to longer term. BMO Capital has applied a higher multiple assumption of 28 times the fiscal year 2025 earnings per share (EPS) to account for this optimism. This adjustment underscores the belief that the market should focus on Starbucks's longer-term potential under its new leadership.
The analyst from BMO Capital noted that strategic moves and clear communication of priorities could lead to positive changes in customer traffic patterns at Starbucks. This expectation is based on the observed turnaround in customer traffic at Chipotle within the first 9 to 12 months of Niccol's tenure. Such a turnaround could serve as a model for Starbucks's own growth strategy moving forward.
However, it was also mentioned that there are current pressures on the company's U.S. comparable store sales (comp) trends for the fiscal fourth quarter of 2024. In light of these pressures, BMO Capital has made adjustments to its estimates. The specific details of the revised estimates were not disclosed, but the acknowledgment of these pressures suggests a note of caution amidst the overall positive outlook.
In conclusion, BMO Capital's revised price target for Starbucks indicates a vote of confidence in the company's potential to grow and succeed under new leadership. The firm's analysis suggests that, despite near-term challenges, Starbucks is positioned to benefit from strategic initiatives that could unlock a more robust growth path in the coming years.
"In other recent news, Starbucks Corporation has been in the spotlight following a series of noteworthy developments. The company has appointed Brian Niccol as its new CEO, a move that has been positively received by analysts from firms including Deutsche Bank, Evercore ISI, and Stifel, who have upgraded Starbucks' stock in response. Niccol, formerly the CEO of Chipotle Mexican Grill, is expected to bring significant improvements to Starbucks' operations and brand management, potentially leading to a resurgence in the company's revenue growth.
Baird equity research firm has maintained an Outperform rating for Starbucks, highlighting the potential for robust earnings per share and exceptional growth in U.S. store sales under Niccol's leadership. Meanwhile, Wolfe Research also reiterated an Outperform rating for Starbucks, pointing out the company's strategic shift in promotional tactics and the upcoming introduction of a new Pecan lineup.
However, the company faces challenges, with a 6% decrease in North America transactions in the June quarter and concerns around boycott pressures and service speed. Despite these hurdles, Starbucks is expected to see earnings growth exceeding 15% over the next three years under Niccol's guidance, according to analysts. These recent developments reflect the ongoing changes and strategic decisions shaping the future of Starbucks Corporation."
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