What Happened?
Shares of coffee chain Dutch Bros (NYSE: BROS) jumped 8.4% in the afternoon session after Morgan Stanley analyst Brian Harbour initiated coverage on the stock with a Buy rating and a price target of $82. The price target implied a potential 15% downside from where shares traded before the coverage was initiated.
The analyst expressed confidence in the stock's long-term prospects, highlighting its strong brand and its rapid expansion into a national player. Harbour noted that after experiencing some volatility following its 2021 IPO, the company, under new management, had made solid progress.
The shares closed the day at $70.45, up 7.6% from previous close.
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What The Market Is Telling Us
Dutch Bros’s shares are very volatile and have had 22 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago when the stock gained 40.3% on the news that the company reported a "beat and raise" quarter, which suggested that its recent sales optimization efforts were resonating with customers.
Dutch Bros delivered strong third-quarter earnings, which blew past analysts' revenue and EBITDA expectations as same-shop transaction growth improved. This showed profitable growth. The company engaged customers by introducing new menus, such as seasonal beverages like the Cookie Butter Latte. The rollout of mobile ordering across most locations also increased transaction frequency.
Lastly, the Dutch Rewards program also contributed to customer retention as the business recorded a high percentage of transactions from members and record-high new memberships. Given the impressive results, management raised full-year revenue and EBITDA guidance. Zooming out, we think this was a standout quarter.
Dutch Bros is up 24.9% since the beginning of the year, but at $70.35 per share, it is still trading 17.6% below its 52-week high of $85.37 from February 2025. Investors who bought $1,000 worth of Dutch Bros’s shares at the IPO in September 2021 would now be looking at an investment worth $1,918.
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