雅虎香港財經 Starbucks: BofA raises its price target to $125 on China reopening
Bank of America (BAC) raised its price target on shares of Starbucks (SBUX) to $125, up from $109, and reiterated a Buy rating on the stock to kick off the new year.
Analyst Sara Senatore said the coffee chain’s brand, scale, and technology positions it for a “strong rebound” and is “poised to benefit” as China abandons its three-year, government regulated zero-COVID policies and reopens its economy.
When it fully rebounds depends largely on China's the economic recovery, she said, but watch one key metric to watch is people's mobility post the looser COVID rules.
BofA is looking at intercity travel and “evidence that people are getting back to work, cities are re-populating and consumers are reverting back to pre-COVID patterns,” Senatore told Yahoo Finance.
Starbucks boosts its presence in China
Throughout the pandemic, Starbucks bulked up in China. As of the fourth quarter of 2022, the Seattle-based giant now has 6,021 locations, compared to 4,706 in the fourth quarter of 2020.
This expansion plan extends back to 2017, when Starbucks bought into roughly 50% of its licensed stores in mainland China.
Because of this rapid expansion, Starbucks' operating earnings were impacted more than other food service chains, such as McDonald's (MCD) and Yum! Brands (YUM), Senatore explained in her note. However, Starbucks' operating earnings should reach 60% to 70% of its pre-pandemic levels this year, she said.
Interim CEO Howard Schultz, meanwhile, has said he is committed to “playing the long game” in China, according to the analyst call following fourth-quarter results. He said Starbucks plans to reach 9,000 stores in China by 2025.
“We are confident that when COVID disruptions affecting the country abate, Starbucks will emerge not only as the undisputed leader in our category but likely the number-one Western consumer brand in the country," he said.
Senatore said Starbucks “will have no problem reaching its long-term targets."
Mobile orders are a key to Starbucks growth in China.
In the fourth quarter of 2022, active Starbucks Rewards members grew 29% from Q4 to over 17 million members, just below historical levels which Schultz noted was “coinciding with the lifting of restrictions and reflecting the relevance and underlying strength of the Starbucks brand in China.”
As shown in the graph above, Senatore explained how COVID-19 lockdowns impacted Starbucks business in China.
"The peak in the second quarter FY21, March, was as people felt more confident in going out and they were allowed to leave their homes. You see the increase of the people who have used the app in the last 90 days, but over the same period of time you're seeing an increase in mobile orders as a share of total," she said.
She added that mobile orders typically result in a "larger transaction."
The dips in mobile orders occurred when people "weren’t leaving their homes" (during COVID lockdowns). Mobile orders drove 44% of total orders in Q4 and delivery represented 24%.
And as more Chinese consumers adopt the morning coffee routine, Starbucks can be seen as an "accessible luxury" in China.
"Similar to ... the U.S., Starbucks is seen as an accessible luxury for the average consumer at a more premium price compared to that of the others listed [in the report: Costa Coffee, Tim Hortons and McCafe]."
Bank of America is one of 14 Starbucks Buys on Wall Street. There are 20 Holds and 1 Sell. In the first day of trading in the new year, shares of Starbucks are up a little more than 1 percent.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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