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Oppenheimer raises price target on Starbucks

Oppenheimer boosts Starbucks price target to $101. Yahoo Finance's Julia La Roche weighs in.

Video Transcript

ADAM SHAPIRO: In the last two hours we've talked about Starbucks. We've talked about Duncan. But, Julia La Roche, it's this price target increase from Oppenheimer to $101 for Starbucks. What's behind this?

JULIA LA ROCHE: Yeah, that's right, Adam. And just looking at the shares of Starbucks, up almost 2% at 88.28, and that's on the heels of the Oppenheimer report from analyst Brian Bittner, who raised the price target for the firm to $101 per share. That's up from a previous price target of $85 per share.

Just let me walk you through some of the reasons behind this. Now Bittner writes, quote, "the attractive earnings power that accompanies a sales recovery is now under-appreciated by investors, highlighted by our work related to fiscal '22. This, along with a powerful self-help catalyst for accelerating same-store sales and market share gains, drives our more bullish stance on the stock's current risk-reward."

What are some of those catalysts when it comes to the same-store sales? Well he points out that they have been focusing on drive-through, for example. They have these point-of-sale tablets that are now being deployed in their drive-throughs. If you recall, during the pandemic when they pivoted to this to-go model, really harnessing their drive-throughs, there were lines down the blocks. They're starting to use technology to get those orders through the drive-through faster.

Also, it's curbside pickup. Think about it. A lot of folks are looking for those more contactless options when they're not going into stores and enjoying that in-store experience. And also the mobile app-- folks who use the mobile app tend to be more loyal to the company. They spend more within the stores. They also-- it plays into that whole contactless situation. But they have these quote, stars, for everyone, which only creates more and more loyalty, so--

He also adds that we saw-- we've seen attractive opportunity, particularly for the long-term investors, to build long positions in Starbucks as visibility and sales margins and EPS power all improve. We believe the downside risk to shares related to near-term sales choppiness in fiscal '21 guidance have become discounted in investor expectations.

So really more of a long-term play. I spoke to Starbucks CEO Kevin Johnson around the last earnings report and really talking about the transformation, kind of that longer-term bet they've been making. So during this time they have been investing heavily in the technology and updating their stores to this more to-go world. You'll see those walk-through stores start to pop up in some of the urban markets and then focusing more on the drive-throughs which have done quite well.