BofA reiterates Buy on Starbucks: China JV sale proceeds and EPS impact are better than expected

Overview

This report focuses on the economic impact of Starbucks’ China joint venture transaction. BofA believes that sale proceeds coming in above initial expectations are a positive upside surprise, as they provide more room for debt repayment and thus offset the drag on EPS from lower China EBIT. The report also updates the earnings model and valuation parameters, concluding with a maintained BUY rating and 137.00 USD target price.

Core views

The core view is that even if the China JV creates accounting dilution to earnings, it can still create value by reducing operating volatility, lessening the drag of the China market on management resources, and unlocking growth potential. If store expansion and same-store sales growth in China accelerate under JV management, EPS dilution will decline further. BofA believes SBUX’s brand fundamentals remain strong and its long-term growth runway is longer than YUM’s, justifying a moderate valuation premium.

Analysis framework

The report first breaks down China’s contribution to revenue and EBIT within the international segment, then estimates the impact of the 60% stake sale proceeds, debt repayment, royalties, and product sales on revenue, EBIT, and EPS. It then uses scenarios for China store growth and SSSG to assess F28 EPS dilution, and derives the target price using a P/E multiple relative to the S&P 500.

Methodology notes

• Valuation methodsRelative P/E valuation

  Deriving the target price using a P/E multiple relative to the S&P 500

  BofA uses a 1.9x relative P/E, corresponding to a 39.4x absolute P/E, and applies this multiple to forward EPS of $3.48 for 3Q27-2Q28 to arrive at the $137 target price.

• Earnings forecastJV economics and EPS scenario analysis

  Using sale proceeds, debt repayment benefits, royalties, product sales, and China growth assumptions to estimate the EPS impact

  The model compares China revenue, EBIT, interest expense, and equity-method income under the company-operated structure versus the JV structure to determine whether higher sale proceeds can offset the lost operating profit.

• Business performanceiQmethod business performance

  BofA Global Research standardized business performance analysis framework

  The report references the iQmethod framework, using business performance, earnings quality, and validation indicators as part of a unified research methodology.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• US.SBUX

  Research subject

  Strengths

  Strong brand foundation, high contribution from the U.S. business, support from loyalty member growth and resilient retail operations, and the China JV may reduce volatility and accelerate growth.

  Weaknesses

  Current earnings are at a low point, valuation multiples are high versus history and peers, and after the China business shifts to a JV there will be lower EBIT and equity-method accounting impacts.

  Comparison

  Versus MCD and YUM, SBUX trades at a clear valuation premium in 2026E, but the premium narrows by 2028E; the report believes its growth rate can approach YUM’s while offering a longer runway.

  Risks

  Slower same-store sales, insufficient effectiveness of company initiatives, worsening demand, labor inflation compressing margins, and China JV growth falling short of expectations.

• YUM.US

  Peer valuation reference

  Strengths

  As a benchmark in international fast food and limited-service dining, it helps compare SBUX’s long-term growth algorithm.

  Weaknesses

  The report does not provide an independent rating analysis of YUM fundamentals.

  Comparison

  BofA expects SBUX’s growth algorithm to be comparable to YUM’s, but with a longer long-term growth runway, allowing it to retain a moderate valuation premium.

  Risks

  If SBUX’s growth delivery is weaker than YUM’s, its relative valuation premium may be hard to sustain.

• MCD

  Peer valuation reference

  Strengths

  As a global restaurant leader, McDonald’s provides a cross-sectional reference for SBUX valuation multiples and premium.

  Weaknesses

  The report mainly uses MCD as a valuation comparison and does not elaborate on its operating forecasts.

  Comparison

  SBUX’s 2026E valuation premium versus MCD and YUM is high, but the premium narrows on 2028E estimates.

  Risks

  If the market reverts to average peer valuations, SBUX’s high multiple may face compression.

Key data

• Rating and target priceBUY; target price 137.00 USD; current price 101.42 USDImplied upside of about 35.1%.
• China business sale proceeds$3.1bnHigher than the roughly $2.4bn pretax proceeds implied by the initial valuation of “at least $4bn.”
• Implied valuation of the China business$5.2bn, about 16x F25 China EBITBased on proceeds of $3.1bn from the sale of a 60% stake.
• 2025 China business revenue$3.106bnAbout 40% of international segment revenue.
• 2025 China business EBIT$327mmAbout one-third of international segment EBIT.
• F28 EPS dilution base caseAbout $0.04Assumes about 400 new stores per year in China and same-store sales growth of about +3%.
• Faster-growth scenarioAbout 1,000 new stores per year in 2027/2028, with SSSG of 4%-5%Under this scenario, EPS dilution would decline further.
• EPS forecast revisionsF26 lowered from $2.49 to $2.45; F28 raised by $0.10 to $3.84The F28 forecast is close to the high end of the company’s guidance range of $3.35-$4.00.
• Valuation assumptions1.9x relative P/E; 39.4x absolute P/EApplied to forward EPS of $3.48 for 3Q27-2Q28.

Impact & implications

From an investment perspective, the report views Starbucks China JV as a structural event that reduces volatility, unlocks capital, and improves growth quality. Higher sale proceeds mean the transaction is no longer primarily an EPS dilution risk, but instead a potential positive catalyst for debt repayment, resource reallocation, and faster future growth in China. The still-elevated near-term valuation, however, requires earnings recovery to materialize for support.

Risks

• Starbucks same-store sales may slow faster than expected due to ineffective company initiatives or a worsening demand environment.
• If labor cost inflation cannot be passed through smoothly, margins may compress more than expected.
• If the China JV fails to achieve faster store expansion or 4%-5% SSSG, the improvement in EPS dilution may be smaller than the model assumes.
• The current P/E multiple is high, and if earnings recovery is slower than expected, valuation normalization may offset EPS upgrades.

What to watch

• Final transaction proceeds for Starbucks China JV, closing progress, and the use of funds for debt repayment.
• Net store additions in China, especially the difference between the two scenarios of about 400 stores per year versus about 1,000 stores per year.
• Whether same-store sales growth in China can reach +3% or the higher 4%-5% range.
• Whether F26, F27, and F28 EPS forecasts continue to be revised upward, especially whether F28 can approach the high end of company guidance.
• Whether SBUX’s valuation premium versus the S&P 500, MCD, and YUM continues to be supported by earnings recovery.
• U.S. business performance, loyalty member growth, retail resilience, and labor cost pressure.