Morgan Stanley Sees Growth Ahead for Starbucks (SBUX), Keeps Buy Rating and $105 PT

Starbucks Corporation (NASDAQ:SBUX) is one of the best dividend stocks to buy. On November 6, Morgan Stanley analyst Brian Harbour maintained a Buy recommendation on Starbucks with a price target of $105. The analyst's Buy call stems from the company's recent business initiatives and growth opportunities. The Starbucks brand is known for its in-house coffee experiences, which the company is trying to reinvigorate for customers. The company is also revamping its holiday product range, which is expected to boost sales and increase customer engagement.

Meanwhile, a news piece by Reuters dated November 3 disclosed that SBUX will hand over control of its Chinese unit to a Chinese private equity company, Boyu Capital, for a transaction value of $4 billion.

This agreement suggests that Boyu will own a 60% interest in Starbucks’ Chinese retail operations, while Starbucks will keep a 40% position. Starbucks will also own the intellectual property and branding for the new entity.

Starbucks Corporation (NASDAQ:SBUX) anticipates that its China retail unit will generate a total value of more than $13 billion, including the amount from the sale of its majority interest, the retained interest value of Starbucks, and the long-term licensing earnings expected over the coming decade. This initiative comes as the company manages a debt balance of $27.9 billion alongside short-term liquidity constraints.

Starbucks entered the Chinese coffee scene back in 1999, and although it has made a name for itself, its market share toppled to just 14% last year, which is significantly lower than the 34% market share it had captured in 2019. This is because Chinese coffee players like Luckin sell their drinks at one-third of the Starbucks price, partly because they offer takeaway and delivery, rather than the SBUX business model, which focuses on dine-in coffee experiences.

Jason Yu, General Manager of CTR Market Research, commented regarding the joint venture:

“Boyu is more of a private equity firm, they are probably going to provide more strategic support to Starbucks and also help them with relationships and digital partnerships."

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