Coffee shop giant Starbucks (SBUX) is making big changes to its China business by selling a 60% stake to Chinese investment firm Boyu Capital for $4 billion. This means that Boyu will now control most of Starbucks’ retail operations in China, while Starbucks will keep a 40% ownership stake and continue to license its brand and products. Starbucks hopes this deal will boost its performance in China, where it faces strong competition from cheaper and fast-growing local brands.
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It is worth noting that Starbucks first opened in China in 1999 and now has about 8,000 stores, thereby making it the company’s second-largest market outside of the U.S. However, growth has slowed down recently, so Starbucks started searching for a partner to help it expand, especially in smaller cities. Interestingly, CEO Brian Niccol said that the company reviewed around 20 offers before choosing Boyu. He also sees a path to more than double the number of stores in China to over 20,000 in the future.
With this new partnership, Starbucks believes that its China business could be worth over $13 billion, including brand licenses. Importantly, investors seem to support the move, as Starbucks’ stock rose in after-hours trading after the news. Even though the stock is still down 11% for the year, the deal gives Starbucks a clearer plan for long-term growth in one of its most important international markets.
Is SBUX Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on SBUX stock based on 13 Buys, seven Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average SBUX price target of $98.17 per share implies 21.3% upside potential.
