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Why Starbucks Corporation Rallied This Morning

By Brian D. Pacampara, CFA – Feb 7, 2014 at 10:43AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Starbucks Corporation (SBUX 0.59%) climbed 1% this morning after Wells Fargo upgraded the specialty coffee gorilla from market perform to outperform.

So what: Along with the downgrade, analyst Bonnie Herzog boosted her price target to $88 (from $75), representing about 22% worth of upside to yesterday's close. While momentum traders might be turned off by the stock's weakness in recent months, Herzog thinks that Starbucks is now too cheap to pass up given the strong U.S. and global growth prospects it still has ahead of it.

Now what: According to Wells, Starbucks' risk/reward trade-off is particularly tasty at this point. "[W]e continue to be impressed with: (1) SBUX's strong execution of multiple initiatives in the U.S., (2) its tremendous potential to become an international powerhouse, (3) its impressive loyalty programs and digital offerings, and (4) its long runway for growth in CPG both in the U.S. and internationally where we believe it's just getting started," noted Herzog. When you couple those opportunities with the stock's sluggish price action of late, it's tough to disagree with Wells' bullish stance. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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