Analysts In Cars Getting Coffee: JPMorgan Upgrades Starbucks After Traveling To HQ

JPMorgan analysts met with Starbucks Corporation SBUX management at its headquarters and drove home bullish on the coffee restaurant chain.

The Analyst

JPMorgan analyst John Ivankoe upgraded Starbucks from Neutral to Overweight with a price target lifted from $90 to $94.

The Thesis

Starbucks' management team showed a "high degree of confidence" that its objective of growth at scale is working through the medium term, Ivankoe said. Of particular note, management implemented a new strategy of "doing fewer things and doing them well" with fewer limited time menu options and more permanent innovation.

Management also emphasized it's a "beverage first" company and food will play a role as add-on or grab-and-go options. Ivankoe said the company has also learned an "expensive lesson" from its Mercato Lunch Menu and similar projects won't be tried again. Instead, Starbucks will offer food items that pair well with beverages, including a near-term use of plant-based protein.

Under the leadership of CEO Kevin Johnson, Starbucks is creating a "world class AI and analytics team" to not only support customer ordering but inventory anticipation and labor scheduling, the analyst wrote in a note. The front-to-back store-level initiative is likely among the best among all brands under the analyst's coverage.

Overall, Starbucks management appears to be "much more confident" in its business and outlook and marks a "very different feeling" from a low-point in mid-2018.

Price Action

Shares of Starbucks were trading higher by 1.5% at $87.80.

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