UPDATE: Starbucks (SBUX) PT Raised to $110 as Morgan Stanley Sees 4 Key Points

January 27, 2021 3:16 AM EST
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Price: $116.27 -1.13%

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    27 Buy, 18 Hold, 1 Sell

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    Up: 8 | Down: 14 | New: 16
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(Updated - January 27, 2021 7:26 AM EST)

Morgan Stanley analyst John Glass raised the price target on Starbucks (NASDAQ: SBUX) to $110.00 (from $106.00) after the company reported a solid margin/EPS beat despite some late quarter sales softness. This dynamic underscores the profit recapture potential as we inch toward a 2H reopening that will drive the top line.

The analyst reiterated an Equalweight rating, highlighting 4 key thoughts from results:

1) Sales remain volatile due to Covid-19, but the trajectory is positive. The US saw SSS trends decelerate to -8% in December vs -4% in November, impacted by rising Covid cases and the closure of seating areas in some stores, but have snapped back to -2% in January

2) 1Q showed phenomenal digital growth, with the US adding 2.5M active digital/rewards members, reaching an all time high of 21.8M

3) 1Q margins exceeded expectations (15.5% at the enterprise level beating internal expectations) despite the late quarter slowdown in the US, check averages have remained high at +20% Y/Y growth

4) FY21 guidance remains in place though SBUX will update it with next quarter's reporting. For 2Q, adjusted EPS guidance of 45-50c compares to prior consensus of 60c

The analyst stated "the longer term top line recovery narrative, margin expansion opportunity and heightened digital engagement all point to why '21 could end up being a better earnings growth year than initially assumed, even if the full year EPS guide was left (prudently) unchanged for now. To be sure, the stock has been pricing in this increased optimism for a while, but nothing we heard from the 1Q would suggest to us that the market's optimism is unfounded".

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