BofA Securities Raises Starbucks Price Target to $118 Amid Growth

Author: Addison Perry Updated: 09-18-2024 01:53 PM

BofA Securities Lifts Price Target for Starbucks Corporation

BofA Securities has made a notable adjustment to its price target for Starbucks Corporation (NASDAQ: SBUX), raising it to $118 from a previous target of $112 while maintaining a Buy rating. This change highlights the firm’s increasing confidence in Starbucks’ operational performance in today's competitive market.

Key Factors Influencing the Price Increase

The analysts at BofA emphasized the application of a higher relative multiple as a crucial factor in the revised price objective. The relative multiple has shifted from 1.2x to 1.3x, demonstrating the firm’s belief in Starbucks’ capacity for solid execution across its business strategies.

Moreover, the new price target accommodates an increase in the absolute multiple, which has adjusted to 25.9x from 24.6x, while the forward earnings per share (EPS) estimate remains unchanged at $4.55 for the upcoming fiscal periods covering the fourth quarter of fiscal year 2025 to the third quarter of fiscal year 2026.

Increased EPS Forecast

The optimistic outlook continues with a raised EPS forecast for fiscal year 2027, now estimated at $5.20, up from a prior projection of $5.11. This change aligns with expectations for stronger comparable store sales growth, now anticipated at 4%, an increase from the earlier estimate of 3.6%.

Leadership Changes at Starbucks

In concurrent news, Michael Conway, the North American CEO of Starbucks, has announced his retirement effective November 30, 2024. The company currently has no designated successor, adding a layer of transition during this pivotal time.

Analysts Remain Optimistic

Starbucks continues to be a focal point for multiple analysts. Goldman Sachs has reaffirmed a Buy rating, underscoring the company’s commitment to improving customer experience and operational effectiveness. Meanwhile, TD Cowen and BMO Capital have both set a price target of $110, showcasing confidence in new CEO Brian Niccol's potential to lead the company towards sustainable growth.

Despite a 6% decrease in North American transactions observed during the June quarter, analysts believe that Starbucks can achieve earnings growth exceeding 15% over the next three years under Niccol’s stewardship, strengthening investor optimism.

Further Developments in Financial Insights

Recent insights from Starbucks Corporation unveil a solid financial standing, especially since BofA Securities shared its optimistic assessment. Data reflects a 20.98% total return over the past three months, showcasing the company's resilience in the market.

The company has an impressive history of dividend growth, having raised its dividend consistently for 14 consecutive years, with a current dividend yield of 2.36%. This commitment to enhancing shareholder value undoubtedly cements investor trust in Starbucks.

Financial Performance and Market Position

Starbucks operates with a moderate level of debt and boasts a healthy P/E ratio of 26.86, which, although appears high relative to near-term earnings growth, indicates robust investor confidence in the company's future earnings potential. Analysts predict a profitable year for Starbucks, buoyed by a gross profit margin of 27.61% reported over the last twelve months as of Q3 2024.

Starbucks as an Industry Leader

As a leader in the Hotels, Restaurants & Leisure sector, Starbucks commands a significant market cap of 109.29 billion USD. This remarkable positioning signals a strong future ahead and makes it a compelling consideration for investors looking for growth opportunities.

Frequently Asked Questions

What is Starbucks' new price target as raised by BofA Securities?

The new price target for Starbucks, according to BofA Securities, is $118, up from $112.

What key factors contributed to the price target increase?

The increase is attributed to a higher relative multiple and stronger execution of business strategies.

Who is the current CEO of Starbucks, and what recent news was announced?

Michael Conway serves as the North American CEO of Starbucks, who has announced his retirement effective November 30, 2024.

What are analysts predicting for Starbucks' earnings growth?

Analysts project that Starbucks will experience earnings growth exceeding 15% over the next three years.

How has Starbucks performed financially in the last three months?

Starbucks has shown a total return of 20.98% in the last three months, reinforcing its strong market presence.

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