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Starbucks shares rise after Luckin Coffee bankruptcy filing

Business

Starbucks is still managing the impact of COVID-19, but is on its way towards recovery

Starbucks

Starbucks Corp. SBUX, +0.56% stock edged up in Monday trading, putting them on track to snap a five-say losing streak, after Chinese competitor Luckin Coffee Inc. LKNCY, +5.10% moved forward with its chapter 15 bankruptcy filing.

Starbucks shares were up 0.8% in midday trading, and have gained 9.7% for the month to date after declining 9.5% in January. The stock was within range of the Dec. 31 record close of $106.98.

Luckin Coffee, a Starbucks competitor in China, has been embroiled in an financial misconduct investigation that has led to the dismissal of corporate executives, charges from U.S. regulators and a stock decline of more than 84% over the past year.

In the meantime, Starbucks has continued to rebuild its business in China, the company’s second lead growth market. Starbucks expects same-store sales growth of almost 100% in the second quarter in China.

“We delivered an impressive positive 5% comparable store sales growth in Q1, but what is most remarkable about our recovery in China is the rapid re-acceleration of new store development, which is our number one driver of growth in that market,” said Kevin Johnson, chief executive of Starbucks, on the earnings call, according to FactSet.

Starbucks has 15.4 million digital members in its Rewards program in China.

“Rewards customer engagement continues to grow as mobile ordering has more than doubled in China over the past year,” Johnson said.

See: Starbucks’ COVID-related sales shift includes larger group orders

Read: Starbucks exec and Amazon director Rosalind Brewer brings digital prowess to CEO role at Walgreens

FactSet, MarketWatch

“Management’s earlier calls for its China’s operations to return to ‘normal’ by the end of 2020 played out as sales ticked into positive territory (ex items),” wrote MKM Partners in a late January note.

MKM rates Starbucks shares neutral with a $105 fair value estimate.

“Overall, we continue to believe Starbucks represents a compelling idea for investors, with secular unit growth and exposure to pent-up demand among both high-income and urban consumers,” wrote Stifel analysts last month.

“Much of China’s sales recovery depends on international travel, so eventual resumption should be a key unlock for comp acceleration.”

Stifel rates Starbucks shares buy with a target price of $115.

Starbucks stock is up nearly 19% over the last year, outpacing the benchmark S&P 500 index SPX, +0.03%, which is up about 16% for the period.

Additional reporting by Tomi Kilgore.