This Chinese company is hardly two years old, it went public less than a month ago, and is already getting on the good side of Wall Street analysts. We are talking about Luckin Coffee (NASDAQ: LK), which, despite being smaller in size, is fast becoming a major competitor to Starbucks (NASDAQ: SBUX).
The company offers heavy discounts on its coffee, which can be ordered through a mobile app. Its shares have gained 5.6% since the IPO on May 16, when 33 million shares were offered at a price of $17 apiece.
Three analysts have already expressed positive opinion on the
stock. Eric Gonzalez of KeyBanc has rated the stock overweight, as he feels the
low-budget model and limited competition in the home market will work in favor
of the company.
“Luckin Coffee’s rapid ascent toward becoming one of China’s
largest consumer brands has attracted its fair share of skeptics. However, we
believe the company has several strategic advantages that should support its
transition into a profitable business,” he said.
KeyBlanc has a price target of $22 on the stock, which is at a 22% upside from the last close.
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Meanwhile, Needham analyst Vincent Yu sees the company breaking even as early as the third quarter of this year. However, he does not expect cash-flow break-even until another year.
Needham has a better price target of $27, with a buy rating.
Lillian Lou of Morgan Stanley said, “We expect Luckin’s
implied market share to grow from 1% to 23% in 2018-21. Urbanization and the
increasing adoption of coffee-drinking by younger generations will underpin
this growth.”
However, he warns that the company’s success could depend on a lot of factors including the rising competition, management strategy, and consumer demands. Morgan Stanley has a more cautious price target of $21 on the stock.