Investing.com -- TD Cowen has upgraded Starbucks to Buy and raised its price target to $120, arguing that the coffee chain's turnaround is still in its "early innings" with multiple drivers that could push earnings and margins above Wall Street expectations over the next two and a half years.

Shares have risen 1.4% in premarket trading.

Analyst Andrew Charles said a visit to Starbucks headquarters with Chief Executive Brian Niccol, Chief Financial Officer Cathy Smith and investor relations leadership gave him greater confidence in the longevity of the North America revitalization, underpinned by a management team he described as having produced an "impressive 6-year dynasty at Taco Bell."

TD Cowen raised its fiscal 2026 through 2028 earnings per share estimates by approximately 9% to $2.46, $3.23 and $3.94, respectively, each roughly 6% above consensus, driven by above-consensus North America same-store sales forecasts of 6.1%, 5.0% and 4.0%.

The firm now models fiscal 2028 consolidated operating margins of 15.1%, above both the company's own guidance range of 13.5%-15% and the 14.6% consensus estimate.

TD Cowen said margin recovery will be driven by easing coffee commodity costs, $2 billion in gross cost savings and sales leverage, with management incentivized by a target of $800 million or more in cumulative savings by the end of 2027.

The $120 price target is based on approximately 30 times fiscal 2028 estimated earnings per share, which TD Cowen views as the first normalized earnings year incorporating the full benefit of targeted cost reductions, representing a premium to the historical average that the firm said is justified by expected positive sales and earnings revisions as restaurant growth accelerates.