To The Moon

Starbucksstock is off roughly 25% year to date, but Jefferies argues that the market has it wrong.

Starbucks ($Starbucks(SBUX)$ ) faces a number of uncertainties in the near term, including employee efforts to unionize, concerns about thecoming departure of its CEO, and the pace of the recovery of its business in China. Those headwinds come amid a difficult time for the restaurant industry in general, given high commodity costs and concerns about consumer spending.

Yet Jefferies analyst Andy Barish says these issues are largely temporary. In addition, selloffs in the stock of this nature “historically have resulted in strong outperformance in the year following, to the tune of 37% (versus 22% forS&P 500).” The analyst rates Starbucks stock Buy with a price target of $130. That is notably above where Starbucks recently traded on Wednesday: The stock was down 1.8% at around $86.

In addition, the stock’s multiple is looking increasingly attractive, trading around 23 times forward earnings. According to Barish, when the shares trade around 20 times forward earnings, that has proven to be an attractive entry point in the past.

While investors still have to be patient for the company to deliver earnings growth and a permanent CEO, but Barish says it makes sense to start building a position while the stock is well-priced. He cites Starbucks’ pricing power and momentum around its digital business and rewards program, and doesn’t expect unionization and wobbles in its China operations to have much of a long-term financial impact.

The retirement of current Chief Executive Kevin Johnson does “leave an obviously large management void,” but Barish anticipates the company will have a successor selected by the fall. “The company is on the right track in terms of most fronts and doesn’t need large strategic changes in our opinion,” he writes.

That position is a popular one. More than half of the 34 analysts tracked by FactSet are bullish on Starbucks. Although that percentage and the average analyst price target of $113.25 have come down slightly in recent months, there still aren’t any bearish calls on the Street.

Starbucks reported mixed earningslast month, and the shares have also been dingedby Russia closures.

Source: Barron's