Investing.com -- Argus upgraded Starbucks Corp (NASDAQ:SBUX) to “Buy” from “Hold” saying the stock is undervalued. Brokerage set a price target of $115, citing the company’s focus on digital improvements, streamlined menus, and store remodeling efforts to boost customer traffic and same-store sales.
Analyst John Staszak said Starbucks’ decision to scale back promotions while emphasizing brand marketing is expected to drive long-term growth.
“Menu simplification and store remodeling are likely to increase customer traffic and raise same-store sales,” Staszak said.
“We think that the sell-off has created a buying opportunity”
CEO Brian Niccol, in his first shareholder meeting since taking over, outlined Starbucks’ recovery plans, which include reducing beverage delivery times to less than four minutes and reintroducing condiments like creamers.
The company is also implementing an order sequencing algorithm to boost delivery speeds.
Starbucks posted operating earnings of $0.69 per share, down from $0.90 a year earlier but slightly above the consensus estimate of $0.67, for Q1.
Even as it added 377 net new stores, revenue remained flat at just under $9.4 billion, with global comparable sales down 4% due to weaker customer traffic.
Starbucks maintains a strong financial position with $3.95 billion in cash and equivalents as of fiscal 1Q25. The company recently raised its dividend by 7%, to $0.61 per share, and Argus projects dividends of $2.48 per share for FY25 and $2.65 for FY26, offering a current yield of about 2.5%.
Argus believes the recent 8% decline in Starbucks shares since January has created a buying opportunity.
“Given efforts to increase customer traffic and open new stores, we believe the shares are undervalued. At current prices, our target price, if achieved, offers investors the prospect of a nearly 19% total return including the dividend,” Staszak said.
The $115 price target implies a potential total return of nearly 19%, including dividends.