Starbucks' stock rises on upgrade. Coffee chain set for 'grande comeback,' an analyst says.

By James Rogers

Starbucks' stock is up in premarket trade Thursday after Bernstein upgrade and price-target raise

Starbucks Corp. was upgraded by Bernstein Thursday, with the analyst firm citing the potential for new Chief Executive Brian Niccol to spur a "grande comeback" for the coffee chain.

"We believe that the current valuation does not fully appreciate the earnings power that Starbucks could unlock," Bernstein analyst Danilo Gargiulo wrote in a note released Thursday. "The turnaround will take time, but we believe that it will not need to be completed for the stock to start to work."

Bernstein upgraded Starbucks (SBUX) to outperform from market perform and raised its price target to $115 from $92.

Related: Starbucks downgraded as analyst cites execution challenges ahead

Starbucks shares are up 3.1% in premarket trades Thursday after ending Wednesday's session up 1.2% at $95.62. The stock is down 0.4% in 2024, compared with the S&P 500 index's SPX 20% gain.

Niccol's appointment was announced on Aug. 13. He joined Starbucks on Sept. 9. Prior to taking the coffee chain's reins, he was CEO of Chipotle Mexican Grill Inc. (CMG), and before that, he served as CEO of Yum! Brands Inc.'s (YUM) Taco Bell and as president of Yum Brands! and Taco Bell.

"We believe that Brian Niccol is the perfect CEO to guide the resurgence of today's Starbucks, leveraging the experience he accumulated at Taco Bell and Chipotle, that were in a similar turnaround mode when he became CEO," Gargiulo wrote. "The appointment as CEO and Chairman of the Board should free up management to draft a plan aimed at operational stability vs chasing growth at all costs."

Related: Starbucks should make this dramatic move to help its stock, BofA says

"We expect further management changes and the reduction of spans and layers in the organization to act as a catalyst for the stock, amid lower G&A expenses (reaching historical lows of 6%) and streamlined decision-making," Gargiulo added.

Not all analysts are as positive about Starbucks' fortunes. Earlier this week Starbucks was downgraded by Jefferies, with the analyst firm highlighting a number of hurdles in Niccol's path.

Last week Bank of America Securities said that Starbucks should consider licensing its China business, saying that such a move could boost value for the company.

Related: New Starbucks CEO Brian Niccol wants to fix confusing menu, long waits for coffee

Of 35 analysts surveyed by FactSet, 21 have an overweight or buy rating, 13 have a hold rating, and one has a sell rating for Starbucks.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-26-24 0902ET

Copyright (c) 2024 Dow Jones & Company, Inc.