Starbucks Corporation (NASDAQ:SBUX) stock is up about 25% over the past year and now a number of analysts believe that SBUX stock has a lot of upside left.
Piper Jaffrey analyst Nicole Regan reiterated Starbucks stock as a “Buy” with a $72.00 price target. (Source: “Starbucks a ‘Top Pick’ Offering a Latte Upside,” Barron’s, March 28, 2016.) With the price of SBUX stock opening at $58.82 on March 29, 2016, that implies a surge in Starbucks stock of 22%.
Regan is calling SBUX stock a top pick for 2016, with the company being “well positioned to continue driving strong same store sales trends” this quarter. (Source: Ibid.) She also believes that Starbucks can nearly double its earnings by 2019.
Starbucks is still undergoing unprecedented organic growth, especially when you consider how ubiquitous the coffee chain has become.
The company’s store sales trends are well above the industry average. In the latest quarter, the company reported that same-store sales increased eight percent globally and increased nine percent in the U.S., partly driven by a four-percent increase in customer traffic.
In contrast, same-store sales of the restaurant industry last November were only up 1.3% over the previous year. (Source: “Monthly change in restaurant same store sales in the United States from April 2014 to November 2015,” Statista, last accessed March 29, 2016.)
Rival McDonald’s Corporation (NYSE:MCD) doesn’t even come close to those numbers either. In its latest earnings, global same-store sales increased five percent and only 1.5% for all of 2015.
Regan isn’t the only analyst that sees good things for SBUX stock. Earlier this month, RBC Capital Markets’ David Palmer reiterated an “Outperform” rating and $68.00 price target on SBUX stock. Palmer believes that Starbucks’ recently restructured loyalty program will continue to drive growth. (Source: Barron’s, op cit.)
Starbucks has one of the best loyalty programs around, as it has proven to be extremely popular with customers.
Starbucks was well ahead of its competitors when it introduced its Starbucks app a few years ago. The app came integrated with a mobile payment system and Starbucks customer loyalty rewards card.
The app caught on with customers like wildfire and it has now become a major focus for the company. Customers that used Starbucks’ mobile app to pay for their coffee accounted for 21% of all U.S. transactions in the first quarter of 2016, with that number rising to 22% in December (Starbucks’ Q1 is from October to December). (Source: “Mobile means more bucks for Starbucks,” Mobile Strategies 360, January 26, 2016.)
The company added that they are seeing further acceleration in that number in January and Palmer believes that number could reach the mid-20% range in the current quarter, largely because of added bonuses for loyalty members. And that’s good news for Starbucks because customers who pay with a mobile device spend three times more than customers who don’t. (Source: Barron’s, op cit.)
Starbucks recently revised its loyalty program to benefit people who spend more. Under the old system, customers earned a single star no matter the cost of the purchase. To get a free drink, loyalty members had to first collect 30 stars to attain gold status, at which point they earn a free drink of any size for every 12 stars attained.
Under the new system, the loyalty program changes to a dollar spent system. Two stars will be earned for every $1.00 dollar spent. After a customer earns the 300 stars needed for gold member status, the customer will earn a free drink for every 125 stars attained.
And just last week, Starbucks announced a partnership with JPMorgan Chase & Co. (NYSE:JPM) to launch a prepaid debit card that customers can earn stars on purchases wherever Visa Inc (NYSE:V) cards are accepted.
This is another great move by Starbucks, as it will further increase the company’s brand visibility and customer loyalty. Customers will be able to apply for the card within the Starbucks mobile app.
Lastly, Nomura analyst Mark Kalinowski initiated coverage on SBUX stock with a “Buy” rating and $70.00 price target. (Source: “Nomura Sees Stock Up 21% to $70,” Barron’s, February 19, 2016.) Kalinowksi believes that Starbucks is one of the top restaurants at incorporating technological initiatives, which should pay off in the coming years.
It’s not really obvious, but Starbucks has become a pioneer in digital innovation. The company was well ahead of its competitors when it introduced Wi-Fi service in its cafes and its Starbucks app a few years ago.
Now Starbucks is taking its app one step further with another innovative idea. The company recently rolled out its “Mobile Order & Pay” system. Using the latest version of the Starbucks app, customers can now order their coffee before they get to the store. The idea is to not have customers wait impatiently in line, especially during peak hours.
In the latest quarter (the service was launched in September), Starbucks president and COO Kevin Johnson said that the company is now processing more than six million Mobile Order & Pay transactions per month and there were about one million U.S. customers who used the service in December. “We have just scratched the surface,” Johnson said. (Source: “Starbucks mobile order-ahead program reaches 6M orders per month,” GeekWire, January 21, 2016.)
The Bottom Line on SBUX Stock
With same-store sales still rapidly growing, one of the best customer loyalty programs around, and the development of innovative technologies to drive sales, it’s no wonder that analysts love SBUX stock. You might want to take a look, too, at Starbucks Corporation.