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Dutch Bros Co IPO: why analysts think stock price rise is just the start


America’s addiction to coffee has become so deeply ingrained that it may be time to update the saying to something like “American as baseball, apple pie AND coffee.” That’s exactly what Dutch Bros. Coffee (NYSE: BROS) and its investors are counting on, following the company’s recent initial public offering.

Roughly 90% of the American population consumes caffeine every single day, according to data from the Kuakini Medical Center, a reality that has helped Starbucks Corporation (Nasdaq: SBUX) reach more than 4,000 individual locations in the U.S. alone. Given such a massive appetite for caffeine, Dutch Bros., which is targeting the very same consumer market as Starbucks, is looking to expand its presence well beyond its current western U.S. footprint. And so far, analysts are optimistic about its prospects for doing so.

A drive-thru specialty drink provider that traces its beginnings to a single espresso pushcart set up by two brothers in Grants Pass, Oregon in 1992, Dutch Bros.’ specializes in beverages ranging from traditional espresso and flavored coffees, to a popular line of cold energy drinks that accounts for more than 80% of its sales.

What do the analysts think of Dutch Bros Coffee?

The company, which stepped up its expansion between 2018 and 2020, currently boasts 471 locations, a combination of franchises and company run stores. As it seeks to broaden not just the number of its locations but its geographical presence as well, Dutch Bros Coffee.’ management has set a goal of ultimately reaching 4,000 U.S. locations -a target that analysts seem optimistic it can meet and possible even exceed.

“Dutch Bros’ Impressive unit-level economics, expansion potential, and pace of development check all the boxes for a compelling restaurant growth investment,” said Stifel Financial analyst Chris O’Cull, one of several analysts to initiate coverage of the stock with a buy rating. “With roughly 500 locations today, the company has outlined the potential for at least 4,000 units, which we believe may prove conservative… we believe BROS represents a compelling compound growth investment,” said O’Cull, who has set an initial 12-month price target of $52 for the company and cited both its drive-thru model and the fact that cold drinks comprise the majority of its menu as appealing factors.

JPMorgan analysts also expressed the belief that the stock is poised for strong long-term growth, initiating the firm’s coverage with an overweight rating and a $47 target price.

“Small brands with big personality”

Among the positive aspects of Dutch Bros.’ business that analysts point to are the fact that the drive-thru model allows the company to keep real estate costs down, as well as the fact that its customizable drinks menu is not limited to specific periods of the day but has instead maintained its popularity throughout the entirety of the hours that locations are open. Added to that is the fact that the company’s strong culture has enabled it to build a strong workforce that has proven fairly loyal, despite the widespread employee shortage that most hourly businesses are currently experiencing.

Despite Starbucks’ deeply entrenched presence within the U.S., industry experts believe Dutch Bros. Coffee’ niche brand could help it stand out. Michael Hamelburger, CEO of marketing agency Sales Therapy, notes that while the market for coffee shops has been overly saturated and there is limited space for further growth, the one exception is small, independent shops. “Big brands need to watch out because consumer tastes have started to evolve towards small brands with big personality,” says Hamelburger.

Dutch Bros., whose IPO prices at $23 a share, began trading on September 15th with an opening price of $32.50. In its first day of trading the stock fell as low as $32.42 before rising as high as $40.10 and ultimately closing at $36.68. The stock, which climbed as high as $62 on September 21, opened trading at $43.50 in its most recent day of trading on October 11th and closed trading that day at $49.00.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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