Baird has ‘high conviction’ in Starbucks turnaround strategies; upgrades to Buy

Investing.com -- Baird analysts upgraded Starbucks (NASDAQ:SBUX) to Outperform with a $115 price target in a note Tuesday, expressing “high conviction that turnaround strategies under new leadership will be effective” in transforming the company. 

The firm expects “visibility to this outcome to become increasingly clear over the next several quarters,” with progress on financial performance likely to boost investor sentiment and support elevated valuations as earnings begin to rebound.

The firm explained that the prior Neutral rating reflected concerns about soft comparable sales amid macroeconomic headwinds, which pressured earnings per share in fiscal 2025 and into 2026, especially as Starbucks accelerated turnaround investments. 

However, Baird now sees “a better risk/reward on the shares following recent underperformance.” Starbucks shares are down 6% since early April versus the S&P 500’s 14% gain.

Baird anticipates stronger U.S. comparable sales emerging in fiscal 2026, modelling growth of +3% in the first quarter and +5% in the second quarter after flat comps in late 2025. 

This optimism is said to be driven by initiatives such as the mid-August rollout of the Green Apron service model, an “enhanced innovation pipeline” including protein cold foam and upgraded bakery offerings, and efforts to add seats to stores, extend operating hours, and drive consumer engagement with better advertising.

While investors have been frustrated by unclear earnings outlooks, Baird notes that improved transparency on store-level labor investments (approximately $500 million) is expected, and further details on cost-saving opportunities in areas such as general and administrative (G&A) and supply chain are anticipated in upcoming quarters.

Assuming a mid-single-digit U.S. comps recovery and $1.0–1.5 billion in cumulative cost savings, Baird forecasts that Starbucks could achieve a 15–16% operating margin by fiscal 2028 and earnings per share above $4, with a compound annual growth rate of 22% or more from 2026 to 2028.