Jefferies Upgrades Starbucks to Hold as China Franchise Exit and U.S. Stabilization Improve Visibility

Starbucks (NASDAQ:SBUX | SBUX Price Prediction) stock is moving higher Monday morning after Jefferies upgraded the shares to Hold from Underperform, lifting its price target to $92 from $86. The upgrade reflects what the firm sees as a meaningfully improved risk profile, driven by the company’s China franchise exit and a stabilizing U.S. business. That said, Jefferies isn’t waving the all-clear flag just yet.

Starbucks shares were last seen trading around $96, up roughly 15% year to date. The stock has recovered sharply from its 52-week low of $73.47, though it remains below its 52-week high of $104.15. The Jefferies move adds to a growing chorus of analyst optimism around the turnaround story.

Jefferies Upgrades on China Exit and U.S. Stabilization

Jefferies cites Starbucks’s reduced international exposure now that China is being franchised, alongside a stabilizing U.S. business, as the core rationale for the upgrade. The firm also acknowledges that visibility into Starbucks executing its turnaround has improved. Those are meaningful shifts for a firm that had previously been bearish on the name.

The China piece is a big part of the story. Starbucks entered a joint venture with Boyu Capital, under which Boyu will acquire up to a 60% interest in Starbucks’ retail operations in China, while Starbucks retains a 40% stake. The deal is expected to close in Spring 2026, subject to regulatory approvals. Once it does, the 8,011 company-operated coffee houses in China will convert to licensed stores within the international segment.

The financial mechanics matter here. Starbucks CFO Catherine Smith noted that the held-for-sale classification reduced monthly expenses by $39 million starting in December. Starbucks will still collect revenues from the joint venture through product sales and royalties, but the heavy capital and operational burden of running China directly comes off the books. For investors who were nervous about China exposure, that’s a real change in the risk equation.

U.S. Turnaround: The Numbers Are Starting to Cooperate

The domestic story is what really underpins the upgrade thesis. In Q1 fiscal 2026, Starbucks’s U.S. company-operated transaction comps grew year over year for the first time in eight quarters. It’s a genuine inflection after a long stretch of traffic erosion that had rattled investor confidence.

Global comparable store sales grew 4% in Q1 fiscal 2026, driven by 3% transaction growth and a 1% average ticket increase. Starbucks’s revenue came in at $9.92 billion, beating consensus estimates and rising 6% year over year. Starbucks CEO Brian Niccol called the results “ahead of schedule” on the turnaround timeline.

Stifel maintained a Buy rating on Starbucks stock with a $105 price target following the China joint venture announcement, arguing the deal would allow Starbucks to focus more intently on its U.S. recovery. Wolfe Research previously upgraded the stock to Outperform with a $112 price target, citing growing confidence in the recovery trajectory. The analyst community is clearly warming up to the turnaround narrative.

The Tension: Better Story, Expensive Stock

Here’s where Jefferies pumps the brakes. Even with the upgrade, the firm argues that Starbucks continues to trade at a “large premium valuation” that it considers “unwarranted.” That’s a pointed qualifier, and the data supports the concern. The stock carries a trailing P/E ratio of 81x and a forward P/E ratio of 42x. For a company still in the early innings of a margin recovery, that’s a lot of optimism already baked in.

Starbucks’s FY2026 non-GAAP EPS guidance stands at $2.15 to $2.40, while GAAP operating margin in Q1 fiscal 2026 contracted 290 basis points year over year to 9%. Labor investments, elevated coffee costs, and tariff pressures are all real headwinds. The turnaround is real, but so are the costs of executing it.

The Jefferies target of $92 sits below where Starbucks stock is trading right now, which tells you everything about how the firm views the risk-reward. It’s a less-bad call, not a conviction buy. Investors watching Starbucks stock today should note that the story is improving, but the valuation leaves little room for execution stumbles. Starbucks has scheduled an Investor Day for April 14, which could be the next major catalyst for the stock in either direction.