Wall Street analysts are becoming believers in the Starbucks overhaul being engineered by CEO and turnaround specialist Brian Niccol. Starbucks gained nearly 2% on Tuesday after Baird upgraded the Club stock to an outperform buy rating from neutral. The analysts also raised their price target to $115 per share from $100, implying more than 25% upside from Monday’s close. The Baird call follows a stream of price target increases since Starbucks reported late on July 29 mixed earnings but progress on Niccol’s “Back to Starbucks” plan. In its Tuesday note, Baird analysts said they have “high conviction” in Niccol’s efforts to revive the brand’s welcoming vibe and speedy service. They said the stock’s premium valuation is being justified as signs of progress emerge. Baird expects these changes to help stabilize same-store sales this quarter before picking up noticeably next year. The analysts see investments in staff balanced by major cost cuts in areas like overhead, setting the stage for stronger profits over time. They also pointed out that any deal to sell a stake in Starbucks China could be worth billions. Big picture Niccol joined Starbucks as CEO last fall after a successful tenure at Chipotle Mexican Grill , where he led a turnaround of that company. At Starbucks, it’s a bigger ask , but he’s starting by focusing on bringing back the coffeehouse feel that made Starbucks a go-to spot beyond home and work. His key moves include rolling out a new “Green Apron” service model aimed at improving store operations and customer service by addressing the company’s weakness in throughput, or the rate at which customers are served. SBUX YTD mountain Starbucks YTD There are clear signs that the new model is working, with more customer visits reported at the 1,500 test stores. During the post-earnings conference call, Niccol touted “double-digit improvement in cafe orders handed off in under four minutes, with 80% of in-cafe orders now meeting that target.” Due to strong early results in the pilot locations, Starbucks is accelerating the rollout of this service model to all U.S. stores ahead of schedule by mid-August. As of its latest earnings release, the company had more than 17,200 locations in the U.S. and nearly 41,100 worldwide. Bottom line We agree with Baird’s call to upgrade Starbucks on greater earnings visibility as the turnaround takes shape. “Brian Niccol [is] doing the right thing, getting traction. Very important call,” Jim Cramer said Tuesday during the Morning Meeting. From the moment it was announced that Niccol would lead Starbucks, Jim had the utmost conviction that the turnaround artist would be able to get the coffee giant back to its coffeehouse roots. That’s why we wanted to buy more shares after Starbucks stock fell in response to earnings despite confirmation that Niccol’s turnaround plan was ahead of schedule. We were finally able to add to our Starbucks position on Monday when our trading restrictions lifted. When Jim mentions a stock on TV, we must wait 72 hours before buying or selling shares. We already had Starbucks at our buy-equivalent 1 rating before Monday’s trade. We’re keeping our Club price target at $100 for now. Looking ahead, Starbucks is expected to report earnings in late October or early November. The company also plans to host an Investor Day in early next year. (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.
