Gordon Haskett Upgrades Starbucks (SBUX) to Buy (1); Valuation and Loyalty Advantages
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(Updated - February 5, 2021 7:38 AM EST)
Gordon Haskett analyst Jeff Farmer upgraded Starbucks (NASDAQ: SBUX) from Hold (3) to Buy (1) and $120 price target.
Farmer notes SBUX’s relative valuation falling to 1.25x the S&P 500 valuation multiple - a level not seen in 2+ years. "1). The drop in the relative multiple has been driven by the combination of: (1) the S&P 500 P/E multiple expanding by 5
turns to 23x since June 2020 and (2) SBUX’s FY22 Street EPS estimate increasing by approximately 10% since June 2020 ($3.15 to $3.45)," the analyst commented. "We’ve been overly focused on SBUX’s absolute valuation level – with this upgrade we’re widening our scope to account for SBUX’s valuation multiple in the context of the sizeable multiple expansion seen by the broader market since summer 2020."
Farmer added that Starbucks "increasingly aggressive pursuit of competitive advantages across digital, delivery, convenience, customer loyalty and labor force stability – factors that are driving market share gains in the current landscape - and factors that will drive even greater gains in the future landscape."
"We see Starbuck’s list of competitive advantages as sustainable and likely to grow even larger given the company’s scale, capital and first-mover advantages vs. every one of its coffee competitors," the analyst added.
Shares of Starbucks closed at $103.64 yesterday.
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