TD Cowen upgraded Starbucks to a Buy rating and lifted its price target to $120, saying the coffee chain's recovery is still in its "early innings" and that several factors could drive earnings and margins above Wall Street expectations over the next two and a half years.
Shares rose 1.4% in premarket trading following the revision.
Analyst Andrew Charles said a visit to Starbucks' headquarters, where he met with Chief Executive Brian Niccol, Chief Financial Officer Cathy Smith and investor relations leadership, increased his conviction in the durability of the North America revitalization effort. Charles pointed to the management team's track record and described the leadership as having produced an "impressive 6-year dynasty at Taco Bell."
Following the engagement, TD Cowen raised its fiscal 2026 through 2028 earnings per share estimates by roughly 9%, to $2.46, $3.23 and $3.94, respectively. Each of those projections sits about 6% higher than consensus, the firm said, driven by North America same-store sales forecasts that are above consensus at 6.1% in fiscal 2026, 5.0% in fiscal 2027 and 4.0% in fiscal 2028.
The brokerage now models consolidated operating margins of 15.1% in fiscal 2028, a level above both Starbucks' own guidance range of 13.5% to 15% and the 14.6% consensus estimate. TD Cowen said the anticipated margin recovery reflects multiple components working in tandem.
Specifically, TD Cowen pointed to easing coffee commodity costs, a plan for $2 billion in gross cost savings and the benefit of sales leverage as the business scales. Management has set a target of $800 million or more in cumulative savings by the end of 2027, which TD Cowen sees as an added incentive for improvement in margins.
The $120 price target is based on approximately 30 times fiscal 2028 estimated earnings per share, which TD Cowen views as the first normalized earnings year incorporating the full benefit of the targeted cost reductions. The firm said that multiple implies a premium to the historical average, a premium it believes is justified if sales and earnings revisions turn positive as restaurant-level growth accelerates.
Context and implications
TD Cowen's revision raises both revenue-side and cost-side expectations for Starbucks over a multi-year horizon. The firm is expecting above-consensus same-store sales in North America and models a margin trajectory that assumes successful delivery of planned cost reductions.
Investors will be watching commodity cost trends, progress against the stated cost-savings targets and whether sales momentum materializes as forecasted.