Starbucks Corporation (ticker: SBUX) stock has lagged many of its large-cap restaurant peers in the past year, but the company’s recent struggles may soon be over. Stifel analyst Mark Astrachan has upgraded SBUX stock from “hold” to “buy” and says there’s nothing wrong with Starbucks’ innovation or core business.
Starbucks has fallen short of market expectations for U.S. comparable store sales growth for four consecutive quarters. According to Astrachan, that trend will soon be coming to an end.
“We believe the sequential declines in U.S. comp store sales growth … were largely due to non-recurring factors,” Asrachan says.
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In addition, he says investors should expect “improvement in overall and U.S. [comparable store sales] next quarter and for the remainder of [the fiscal year] driven largely by more favorable comparisons and, to a lesser extent, innovation.”
Stifel now projects 5 to 6 percent U.S. comparable sales growth over at least the next four quarters.
Starbucks is in the process of rolling out a number of innovations, including text notifications when orders are ready and personalized recommendations via the Starbucks app. The company also is beefing up its cold brew and tea offerings.
Despite its disappointing sales numbers in the past year, Starbucks’ innovation has allowed the coffee giant to maintain its reputation as a top choice among the coveted teen demographic. The latest Piper Jaffray bi-annual teen survey revealed Starbucks is the second choice behind only Chick-fil-A as the most preferred restaurant destination among teens.
Outside the restaurant segment, Astrachan says Starbucks also has growth potential in its packaged tea and coffee business, as well as its ready-to-drink beverage business.
Astrachan says Starbucks’ stagnant share price has also made the stock a compelling value for investors relative to its peers.
[See: 9 Ways to Buy Stocks That Everyone Needs.]
“SBUX shares trade at a 19 percent [price-to-earnings ratio] discount to restaurant peers and a 16 percent discount to five-year historical averages,” he says.
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Starbucks Corporation (SBUX) Is Brewing Up a Comeback originally appeared on usnews.com
