Why we chose to keep our Starbucks rating despite strong quarter and investor day

CNBC Finance

3 min read

Starbucks' turnaround is on the right track, but the path to its long-term growth targets will require some patience from investors. The coffee chain giant held a highly anticipated investor day on Thursday, a day after delivering encouraging, but mixed, quarterly results . Management outlined multi-year financial targets that indicate an acceleration in the turnaround's progress. By fiscal 2028, Starbucks projects global and U.S. same-store sales will grow at least 3%, revenue will rise at least 5%, and earnings per share will be $3.35 to $4, compared to FactSet's estimate of $3.41. The company also estimated that it would achieve an operating margin of 13.5% to 15% by 2028. Supporting those goals is CEO Brian Niccol's "Back to Starbucks" strategy, which focuses on simplifying operations, improving store throughput and speed of service while reengaging with its Rewards customers. The company also made progress on its goal of making every drink in under four minutes, Niccol said on CNBC's "Squawk Box" on Thursday morning. The standout metric, though, was same-store sales, which beat across the board. The core U.S. transactions alsoÂ grew for the first time in eight quarters, for both rewards and non-rewards members. That progress is positioning Starbucks to get more out of its Rewards program, which is at a record 35.5 million members. During its investor day, the company announced a remodel of its rewards loyalty program, which launches March 10. It's a way to "unlock greater earnings power" to accelerate the company's future sales growth and profits, Starbucks said in the press release. The program will have a new tiered membership structure with three levels: green, gold, and reserve, each offering different levels of earning rates. SBUX YTD mountain SBUX performance YTD. The investor day messaging and upbeat earnings print reinforced growing confidence in the turnaround story. "He's telling you the story the way we all want it," Jim Cramer said during Thursday's Morning Meeting, referring to Niccol's effort to re-instill confidence in the business by showing a measured turnaround is taking shape and continuing to push forward. "If you are impatient with this, that's a very, very big mistake," Jim added. Thursday's bullish updates weren't enough to elevate the stock, which is down nearly 1%. However, shares jumped 10% on Wednesday following the earnings release and are up 13% this year, which is why we downgraded it to a 2-rating heading into the eventful week. If the stock continues to fall, we may look to do some opportunistic buying. In the meantime, we maintain our rating and keep our $ 100-per-share price target. (Jim Cramer's Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Why we chose to keep our Starbucks rating despite strong quarter and investor day

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