Starbucks is poised for double-digit revenue gains on its ability to generate sales of more expensive coffee products and premium food items, a note from KeyBanc Capital Markets said.
KeyBanc upgraded Starbucks shares to "overweight" and set a 12-month price target at $68.
Starbucks has continued to increase sales every year, showing promising signs that it will continue to navigate changes in consumer behavior. It has added more premium food and drink options and developed its app to encourage customers to spend more, KeyBanc said in a note.
Last year, Starbucks generated $21.3 billion in sales. KeyBanc estimates that number could grow to 25.1 billion in 2018, an increase of 18 percent.
Shares of Starbucks have climbed 7 percent in the last year. The price hit an all-time high of $64.87 on June 5, though it has since settled down to $59.61.
KeyBanc says the $68 price target, or 15 percent annual earnings-per-share growth, is attainable because of Starbucks' strategy to encourage customers to spend more. One area KeyBanc found attractive was Starbucks' focus on adding more premium food and drink options.
The note cited Starbucks' ice coffee as a prime example.
A traditional iced coffee costs $2.95 at one of Starbucks' Seattle locations. But two other iced options are more expensive: A Nariño 70 costs $3.45, and a nitro cold brew with sweet cream costs $4.45.
Former CEO Howard Schultz stepped down in April, making way for COO Kevin Johnson. KeyBanc expressed confidence in the move, acknowledging that Schultz will remain at the company as executive chairman to lead the ultra-premium platform push, and the company has about 60 senior executives each with an average of about 10 years of experience at Starbucks.
Starbucks' stock barely budged in pre-market trading following the note's release.