Oppenheimer raises Starbucks price target to $101 from $85
Oppenheimer raised the price target of Starbucks to $101 from $85, citing the global coffee chain's ‘attractive earnings power that accompanies a sales recovery' being under-appreciated by investors. The Final Round panel breaks down the details.
Video Transcript
MYLES UDLAND: All right, welcome back to "The Final Round" here on Yahoo Finance. Time now for our call of the day. Today, we're talking about Oppenheimer's latest note on shares of Starbucks. Great title here, firm pounding the coffee table on stock raising their price target to $101 per share, and this is a stock that has surprisingly been a COVID winner of sorts, and we saw some interesting data from Bank of America earlier today about how fast food chains are really the big beneficiaries.
And so on that level, makes some sense that Starbucks would fit into that play given the kind of capital base they have, the number of locations. But a pretty compelling thesis here showing up on just this one point, which is that Oppenheimer says that Starbucks is likely to earn as much money in EBIT next year as the street is currently forecasting for 2022. And so on their view, a straightforward case here for stock that should go up about 15%.
SEANA SMITH: Yeah, Oppenheimer basically just saying that the street is underestimating its power at this point, that the earnings power that accompanies a sales recovery is significantly underappreciated by investors, and that's why they're raising their price target here. I mean, it's interesting in terms of what they lay out, because it's all things that we have talked about before, but I think really what's making this call a little bit different is just how successful or how big of an impact Oppenheimer thinks that this has had over the last couple of weeks, and then, of course, moving forward here in the short term until they expect Starbucks to fully recapture sales in fiscal 2022. But those couple of things that they did outline, the drive-through lanes, the point of sale tablets, Starbucks pivoting to this during the pandemic in order to speed up those drive-through lanes. Clearly, this is something that has worked.
Starbucks has talked about this a couple of times over the last several months, so Oppenheimer saying that this is a huge I guess move in the right direction, a big step in the right direction for the company as it does look to recapture some of its lost sales. Curbside pickup has been a successful move here for Starbucks. Over the last several weeks, we've seen a number of other restaurants and a number of other retailers also employ this type of strategy, but Oppenheimer saying that Starbucks has been able to regain some of their lost sales with that and also just entice customers who are still a little bit nervous about going inside their stores that they're still are able to sell to those customers with curbside pickup.
And then also some changes that it's made to its loyalty program. Starbucks has taken steps to enhance its loyalty program helping to increase I guess the frequency, you can say, of repeat customers. So Oppenheimer thinking that all three of those things are at least bullish stance here for the company moving forward. It's enough for Oppenheimer to raised its price target to $101 a share.
MELODY HAHM: And Seana, I think from the consumer perspective, so many folks who are venturing out want to know that it's a brand that have put in the safety precautions, right? So I do think whether it's Starbucks, whether it's the fast food giants, like Myles, you mentioned, you know that there's some decent level of protocol, right? Whether or not the employees all follow that or not is a different story, but I think there is a chasm right now with, OK, understanding and believing that there can be some infrastructure in place whether it is masks, gloves, any sort of the PPE sort of provision that perhaps mom and pop stores haven't really fully been equipped with.
Another element here that I thought was really interesting, and this is going off of a BTIG note actually downgrading Dunkin, is that breakfast has been the hardest to recover when you think about the meals over the COVID period, because people are not commuting to work. They're not actually picking up those Egg McMuffins or bites from the Starbucks and Dunkins of the world, and I do feel like Starbucks is positioning itself as a destination at all hours, whereas Duncan really is sort of categorized as a breakfast play. That shows the kind of dichotomy that exists in that both of these chains are not created equally, right, at this point.
MYLES UDLAND: Yeah, and I think also kind of reading this note and thinking about, you know, how bullish one firm is on Starbucks' ability to not only execute but then profit during this period is it brings back to mind the way this recovery has played out, the K-shaped nature of this recovery, right? Because Starbucks is winning, because it's open, and because it has the ability to give its employees the PPE that they need. It is able to install partitions between the register and the checkout line. It is able to setup in some locations, you know, entirely separate to go areas. Obviously, they have massive drive-through businesses everywhere that isn't a major city in the US, and so I think, or you know, at least not New York City.
And so I think that all of those things and really the way this company has been set to benefit and is likely set to benefit from this really explains kind of all in one place so many of the themes that we've seen going on during this pandemic. And I think we all fear that next year will just be kind of a longer drawn out replay of every Chipotle and McDonald's, you know, Chili's and Starbucks comes back online. Meanwhile, every place we would actually want to go and spend our time is going to struggle to kind of make that work.
