Starbucks (NASDAQ:SBUX) coffee was a staple part of many people’s morning routine prior to the pandemic, but stay-at-home orders put a wrench in the coffee company’s revenues. After SBUX stock hit a low of $52 in 2020, the company was able to pivot its business model and emerge from the pandemic stronger than before.
People are expected to make their way back into coffee shops, hinting at a brighter future for the coffee chain. Adding to this, Starbucks has a strong balance sheet and major expansion plans in the pipeline.
Although the stock isn’t necessarily cheap, we can be certain that it is headed for bigger gains in the future.
The vaccine distribution has led many states across the U.S. to ease pandemic restrictions. A major facet of the new guidelines is the reopening of indoor dining and an increase in restaurant capacity. For Starbucks, this means that people will make their way back into the coffee shops sooner than expected.
The coffee company sustained some major losses at the start of the pandemic when in-store coffee sales came to standstill.
The Pandemic and SBUX Stock
Although online orders helped recoup some losses, there was still lost revenue from office workers and commuters who got their daily dose of coffee from Starbucks. Adding to this is the collapse in demand from people who like to enjoy a cup of coffee at their local coffee shop.
All of that is turning around.
Same-store sales should “materially accelerate” according to Peter Saleh, an analyst at BTIG.
Saleh believes that the reopening of indoor dining and the extra cash from the government stimulus checks will push Starbucks’ sales up significantly. Keeping with this optimistic outlook, the analyst raised his rating of SBUX stock from “neutral” to “buy” with a price target of $130.
Starbucks has positioned itself as a customer staple brand. Hence, when demand does return to its pre-pandemic levels, there is a good chance the stock will hit new highs. This makes this Starbucks a great investment right now.
Reasons for Optimism
In addition to rising same-store sales, there are plenty of other reasons to remain optimistic about SBUX stock. For one, the coffee company has major plans for expansion.
Starbucks currently operates 32,000 stores in 62 countries. Management expects to have 55,000 stores by 2030 with 1,100 new locations in 2021.
Given that Starbuck’s global market share is just 1%, the company has plenty of opportunity to grow and expand globally. Nearly 600 stores are expected to open in China this year.
Starbucks isn’t just focusing on internal growth but on the quality of its coffee as well. At its annual shareholder meeting, the company announced that it hopes to make its green coffee carbon neutral by 2030.
The term “Green” refers to how the beans are grown, harvested and transported for processing into the final product. The heightened awareness of climate change has led Starbucks to place greater emphasis on ESG factors and how it affects the coffee it serves. The company will also open a sustainable roasting plant in China by 2022.
With growth opportunities and plans for more sustainable coffee production, SBUX stock shows strong signs of going much higher in the coming years.
Although 2021 earnings will be all about getting back to their pre-pandemic levels, there will be an uptick in the numbers in the following years.
Starbucks estimates its comparable-store-sales will increase by 18% to 23% in 2021 and EPS between $2.70 to $2.90.
The Bottom Line
Prior to the pandemic SBUX stock was trading at an all-time high so there is good reason to believe that the company will recover faster than its competitors.
Visits to the local Starbucks were a staple part of many people’s daily routines and they will likely continue after the pandemic as well. Adding to this is the recent run of upgrades on the stock’s target price which only cements the bullish sentiments.
If there was ever a perfect time to make your move on Starbucks stock, this is it. With internal expansion plans, more sustainable coffee practices and economic recovery ahead, the stock is a bargain buy right now.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.