Once the quintessential coffee brand, Starbucks (NASDAQ: SBUX) has significantly fallen from grace compared to its glory days at the turn of the decade. Starbucks stock reached an all-time high of $125 in mid-2021 — just a year later, the stock was trading at levels 42.95% lower.
Several crucial factors have driven the prolonged underperformance of SBUX stock. Within the crucial Chinese market, the business has continually been losing market share to local brands such as Luckin Coffee and Cotti Coffee.
In tandem with this, Starbucks shares have faced downward pressure due to the company’s perceived stances regarding social issues. Amid the era of cancel culture and boycotts, the coffeemaker has managed a rare feat — checking both boxes and drawing the ire of both ends of the political spectrum.
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On the left wing side of the aisle, the company’s support for Israel amid the country’s ongoing onslaught in Gaza presents an issue — while on the right, Starbucks’ DEI (diversity, equity, inclusion) and ESG (environmental, social, governance) efforts have led to it being in the crosshairs of anti-woke investment groups.
At press time, SBUX stock was trading at $98.76 — with year-to-date (YTD) gains standing at a modest 5.43%.
These significant pressures could abate soon, however — equity analysts from some of Wall Street’s premier firms have recently revisited their price targets for Starbucks stock — and they see plenty of upside in the cards.
Is Wall Street turning bullish on Starbucks stock?
Most recently, on November 26, Zachary Fadem, a senior retail and restaurant equity analyst at Wells Fargo, reiterated a prior ‘Overweight’ rating, while raising his previous price target of $110 to $115. If reached, that level would represent a 16.44% upside from the current price of a single SBUX share.
The primary driver of Fadem’s renewed optimism has to do with the crucial pain point that China has been for the business. At present, Starbucks is considering a strategic shift — selling off its stake in local operations or entering into a partnership with a Chinese venture to cut losses.
In a note shared with investors, the researcher called the current state of affairs a ‘no-lose situation for Starbucks, opining that both a joint venture or spin/sale scenario would boost long-term margins and earnings per share (EPS).
A similar sentiment was echoed by TD Cowen analyst Andrew Charles, who maintained a ‘Buy’ rating and, just like Fadem, increased his price target from $110 to $115. On a broader level, Charles opined that investors have turned too bearish on coffee — and that the current at-home trend will not hold.
He further clarified his stance in a note to investors, stating that:
‘We expect Starbucks U.S. to continue to dominate the U.S. coffee shop market for the next 10 years, with market share increasing from approximately 42% in 2024 to about 43% by the end of 2033’.
The analyst also added that the expected increase will come at the expense of convenience stores and McDonalds (NYSE: MCD).
Featured image via Shutterstock
