Baird upgrades Starbucks on turnaround momentum, sees over 25% upside

Baird has upgraded Starbucks to Outperform from Neutral, raising its price target to $115, citing increasing conviction in the company's turnaround momentum under CEO Brian Niccol and projecting over 25% upside. Despite six consecutive quarters of same-store sales declines, the firm highlights strategic investments, including $500 million in labor and an innovation pipeline, which are expected to drive efficiency and work towards restoring operating margins to the 2019 level of 17% from an estimated 10.3% in FY25. This positive outlook suggests a potential rebound and significant upside as these initiatives gain traction and execution becomes clearer over the coming quarters.

Analysis

Baird's upgrade of Starbucks (SBUX) to Outperform with a new $115 price target projects over 25% upside, anchoring a bullish thesis on the company's long-term turnaround potential despite significant recent headwinds. This optimism is set against a backdrop of challenging performance, including six consecutive quarters of same-store sales declines and a stock that has lagged the S&P 500's year-to-date gains, rising only 0.5% compared to the index's over 8% increase. The core of Baird's conviction lies in the strategic initiatives under new leadership, particularly a $500 million investment in labor and an innovation pipeline featuring new products. The key financial target is the restoration of operating margins to the fiscal 2019 level of 17%, a substantial improvement from the estimated 10.3% for fiscal 2025. Baird anticipates stronger US comparable sales will materialize in 2026, with further details on cost-saving measures expected at the early 2026 Investor Meeting. This forward-looking view contrasts with the currently divided Wall Street sentiment, where 18 of 39 analysts rate the stock a hold, highlighting that this is a bet on future execution rather than current results.

Key Decisions for Investors

• Investors with a longer-term horizon could view this as a turnaround opportunity, considering the potential 25% upside if management successfully executes on margin expansion and sales growth initiatives.
• Given the six consecutive quarters of negative same-store sales, a more cautious approach would involve monitoring upcoming earnings reports for tangible evidence of a reversal in this trend before committing new capital.
• Key metrics to watch are progress toward the 17% operating margin target and any specific cost-saving plans announced at the early 2026 Investor Meeting, as these are the primary catalysts underpinning Baird's bull case.