Baird upgrades Starbucks, says the turnaround picture is becoming clear

Baird upgraded Starbucks (SBUX) to Outperform from Neutral, raising its price target to $115, implying over 25% upside, based on conviction that the company's turnaround strategy will gain traction despite six consecutive quarters of same-store sales declines. The firm anticipates improved U.S. comparable sales by 2026, driven by initiatives like the 'Green Apron Service,' enhanced innovation, and significant cost savings opportunities aimed at restoring operating margins to 2019 levels. This positive outlook suggests that operational improvements will increasingly boost investor sentiment and financial performance over the coming quarters, despite mixed analyst sentiment and recent stock underperformance.

Analysis

Baird has upgraded Starbucks (SBUX) to Outperform from Neutral, raising its price target to $115, which implies a potential upside of over 25%. This optimistic outlook is predicated on a conviction that the company's turnaround strategy under new leadership will gain traction over the next several quarters. This view contrasts sharply with the company's recent performance, which includes six consecutive quarters of same-store sales declines and a year-to-date stock performance of only 0.5% gain, significantly lagging the S&P 500. Baird's thesis anticipates stronger U.S. comparable sales emerging in 2026, driven by specific initiatives such as the customer-centric 'Green Apron Service,' an enhanced product innovation pipeline, and a substantial ~$500 million investment in store-level labor. Furthermore, the analysis points to meaningful cost-saving opportunities that could help Starbucks achieve its long-term goal of restoring its operating margin to the FY2019 level of 17% from an estimated 10.3% in FY2025. It is important to note, however, that this bullish stance is not a consensus view, as LSEG data shows analyst ratings are nearly evenly split between 'Hold' (18) and 'Buy' (17), indicating significant market debate over the timing and certainty of the recovery.

Key Decisions for Investors

• Investors with a long-term horizon may consider the current stock weakness an opportunity, aligning with Baird's thesis that strategic initiatives will drive a multi-quarter recovery.
• It is crucial to monitor upcoming quarterly reports for tangible evidence of a turnaround, specifically looking for stabilization in same-store sales and initial progress on margin improvement from cost-saving measures.
• Given the divided analyst sentiment, investors should weigh this bullish, forward-looking upgrade against the considerable number of 'Hold' ratings, which reflect skepticism about the near-term execution of the turnaround plan.