Wall Street’s sentiment towards Starbucks is beginning to shift positively, highlighted by a significant upgrade from TD Cowen. On Thursday, Starbucks shares surged nearly 2% after the firm revised its recommendation from hold to buy, asserting that the company’s turnaround efforts are progressing sooner than anticipated. The new price target has been raised to $120, up from $106, backed by robust same-store sales, diminishing cost pressures, and a clearer trajectory for earnings growth.
Analysts from TD Cowen shared insights from a recent meeting with CEO Brian Niccol and CFO Cathy Smith, expressing confidence that Starbucks is in the early stages of revitalizing its North American operations. This confidence is reflected in their updated forecast for same-store sales, which is now projected at 6.1% for 2026, 5% for 2027, and 4% for 2028, all of which exceed current Wall Street estimates. Furthermore, the analysts increased their earnings per share (EPS) expectations, anticipating a net EPS of $3.94 by fiscal year 2028, an increment from their prior estimate of $3.52 and above the consensus figure of $3.65.
Key strategies underpinning this growth outlook include management’s target of achieving $800 million in cumulative savings by 2027, coupled with a rapid pace of menu innovation, optimized marketing efforts, and a focus on increasing membership and engagement in its loyalty program. Since taking the reins as CEO in September 2024, Niccol has implemented various practical initiatives to stabilize and enhance the business’s performance.
The latest earnings report, released on April 28, marked a turning point for Starbucks, showcasing its first earnings beat in five quarters. This positive development resulted in a nearly 10% stock appreciation over the past month, pushing the year-to-date growth to an impressive 29%. Shares are currently trading at approximately $108, though still trailing behind the highs of $117 reached in March 2025.
Despite this bullish outlook, there remains a cautious sentiment among investors. Many analysts are still deliberating on the sustainability of margin recovery, given that Starbucks is navigating through a phase characterized by substantial labor costs and operational expenditures. There is a pressing interest in whether Niccol can restore the company’s operating margins to the historical range of 17% to 19%, as seen between 2015 and 2019.
Cautiously optimistic, TD Cowen believes that an inflection point for margins may be on the horizon, buoyed by dropping coffee costs, sales-driven operating leverage, and targeted cost savings totaling approximately $2 billion. However, less than half of the analysts currently covering Starbucks classify the stock as a buy or buy-equivalent, signaling that while some are hopeful, others remain skeptical of its path forward.
In summary, while Starbucks is showing signs of recovery and improved financial health, the company’s future success relies heavily on its ability to balance operational costs with revenue growth and margin recovery, making it a subject of scrutiny among investors.
