: Starbucks shares rise after Luckin Coffee bankruptcy filing

United States

Starbucks Corp.’s stock SBUX, +0.81% edged up in Tuesday trading, putting it on track to snap a five-say losing streak, after Chinese competitor Luckin Coffee Inc. LKNCY, +4.39% moved forward with a Chapter 15 bankruptcy filing.

Starbucks shares have gained 9.2% to date this month after declining 9.5% in January. The stock was within range of the Dec. 31 record close of $ 106.98.

Starbucks shares closed Tuesday up 0.8% to $ 106.15.

Luckin Coffee, which aggressively positioned itself as a strong Starbucks challenger in China, has been embroiled in a 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 leading growth market. Starbucks expects China same-store-sales growth of almost 100% in the second quarter.

“We delivered an impressive positive 5% comparable-store-sales growth in [the first quarter], but what is most remarkable about our recovery in China is the rapid re-acceleration of new store development, which is our No. 1 driver of growth in that market,” Starbucks CEO Kevin Johnson said on the company’s earnings conference 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.

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FactSet, MarketWatch

“Management’s earlier calls for [China] 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 18.4% over the last year, outpacing the benchmark S&P 500 index SPX, -0.06%, which is up 16.3% for the period.

Additional reporting by Tomi Kilgore.