- Starbucks stock could rise 21% as its loyalty rewards program helps it defend against growing competition, Bank of America said.
- The bank reinstated the coffee retailer’s coverage with a “Buy” note in a Monday note.
- “Starbucks Rewards has been a tailwind for a decade, expanding Starbucks’ reach to new customers and increasing spending when it does,” BofA said.
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Starbucks shares may continue to rise as the coffee retailer’s loyalty rewards program helps drive growth and defend against increased competition, Bank of America said in a note Monday.
The bank restored Starbucks coverage to a “Buy” rating and set a price target of $ 135, which is a potential 21% hike from Friday’s close.
Much of the stock’s rise will be due to its profit growth at U.S. sites, according to the bank, which highlighted its advantages of scale in the specialty coffee market. With nearly 9,000 locations in the United States, it will be difficult for new coffee entrants to compete with Starbucks, according to the note.
“Few concepts have been able to achieve significant scale. The result is significant scale advantages and supra-competitive returns for chains that have them,” said BofA.
And adding to Starbucks’ competitive divide is its loyalty rewards app, which has helped drive growth and fend off competition. “Starbucks Rewards has been a tailwind for a decade, expanding Starbucks’ reach to new customers and increasing spending when it does,” BofA said.
The bank said growth in the Starbucks app was a leading indicator of the company’s quarterly sales growth, and that in the third quarter, “Starbucks Rewards’ growth has increased sharply, bodes well for demand under -jacent “.
Despite strong earnings in the US, headwinds in China – where Starbucks is quickly opening new locations – are influencing the stock’s current valuation. But China’s concerns seem exaggerated, as past economic downturns in the country have had less of an impact on Starbucks than its local competitors, BofA argued.
Starbucks stock is below its 5, 10 and 15 year valuation averages against the S&P 500, amid fears of slower growth in China, BofA said. “We believe that the story [valuation] The range remains relevant as Starbucks’ growth has consistently outpaced that of the broader market. “
Starbucks shares traded as high as 2% on Monday and are up about 6% year-to-date.