A Starbucks upgrade tackles a thorny issue pushed by the stock's skeptics

Wall Street is warming back up to Starbucks . Starbucks popped nearly 2% on Thursday after TD Cowen upgraded the stock to buy from hold, arguing the coffee giant's closely watched turnaround is moving ahead of schedule. The firm also raised its price target to $120 from $106, citing stronger same-store sales, easing cost pressures, and a clearer path to earnings growth. In a note to clients, the analysts wrote that they "gained a greater appreciation that Starbucks is in the early innings of the North America revitalization," after a visit with CEO Brian Niccol and CFO Cathy Smith. Translation: much more to come. Indeed, following that meeting, TD Cowen raised its same-store sales forecast for 2026 through 2028 in North America to 6.1%, 5%, and 4%, up from 5.5%, 3.5%, and 3.5%, respectively. All estimates are above the Wall Street consensus figures. The analysts also increased their earnings per share estimate by about 9% to $3.94 by fiscal 2028 (ending in September 2028), up from their previous forecast of $3.52 and above the consensus $3.65. Cost cuts will support EPS growth, the firm said, as management aims for $800 million in cumulative savings by 2027. Other levers include "a high frequency pace" of menu innovation, "optimal channel of marketing," and growing the membership and frequency of its loyalty program. Under Niccol, who became CEO in September of 2024, Starbucks has been implementing "a lot of common-sense things they probably should have done a long time ago to fix the business," said Jeff Marks, director of portfolio analysis, during the Morning Meeting for Investing Club members on Thursday. "Starbucks is not done," Jim Cramer said Thursday during the meeting, adding that the stock "could trade much higher." We have a $115 price target on the stock and keep our rating at 2 , which means we'll wait for a pullback before buying more. To be sure, execution remains critical, and Starbucks still has work to do to prove that margin recovery can happen consistently. Margin improvement has become the biggest debate amongst Starbucks investors, as some viewed Niccol's "Back to Starbucks" turnaround as too expensive. Others pointed out that those costs are a necessary evil for rebuilding the brand and improving customer retention. And it has worked. In the company's latest second-quarter earnings reported on Apr. 28, Starbucks delivered its first earnings beat in five quarters. Those results pushed the stock up nearly 10% over the past month. Shares have rallied 29% year-to-date, trading at $108 per share, though still below March 2025 highs of $117 per share. We trimmed our Starbucks position on Apr. 20, locking in some gains after the stock reached $100 per share. Niccol has simultaneously been working to offset those investments through corporate layoffs, operational efficiencies, and other cost-cutting initiatives. SBUX YTD mountain SBUX stock performance year-to-date. Yet with the market largely convinced that Starbucks can stabilize traffic and comparable sales, the bigger question remains whether Niccol can restore the company's historical margin profile after a period marked by heavy labor investment and operational spending. Investors want to see the operating margin back in the range between 17% to 19%, which the company enjoyed from fiscal years 2015 to 2019. That's why, despite Thursday's upgrade, Wall Street still isn't overwhelmingly bullish on Starbucks. Fewer than half of the analysts covering the stock currently rate it buy or buy-equivalent, highlighting cautious sentiment despite the company's recent sales and stock recovery. TD Cowen is optimistic that the margin inflection point is approaching. The firm said easing coffee costs, operating leverage from stronger sales, and a roughly $2 billion target cost savings could help Starbucks rebuild margins over the next several years. (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.