Starbucks trades higher after Bernstein points to turnaround upside

Bernstein upgraded Starbucks Corporation (NASDAQ:SBUX) to an Outperform rating on Thursday after having it set at Market Perform. The firm sees Brian Niccol as the perfect CEO to guide a comeback for the brand, as he is seen leveraging the experience he accumulated at Taco Bell and Chipotle, that were in a similar turnaround mode when he became CEO.

The new CEO and Chairman of the Board appointments are seen freeing up management to draft a plan aimed at operational stability, instead of chasing growth at all costs. “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,” highlighted analyst Danilo Gargiulo.

Gargiulo and his team think current valuation on SBUX does not fully appreciate the earnings power that Starbucks could unlock, despite the optimism. “The turnaround will take time, but we believe that it will not need to be completed for the stock to start to work,” updated Gargiulo.

Looking ahead, Starbucks (SBUX) is seen benefiting from a spin-off or partnership in China, a faster recovery from the Middle East boycotts, lower interest rates, accelerated easing of macro pressures in the U.S. and China, and swifter emphasis on food offerings. Bernstein’s price target on SBUX of $115 reps about 20% upside potential.

Starbucks (SBUX) still has a consensus Buy rating on Wall Street, while Seeking Alpha analysts have a consensus Hold rating on the coffee chain stock.

Shares of Starbucks (SBUX) were up 2.75% in premarket trading on Thursday to $98.21.