Citi believes that Dutch Bros ‘ strong brand engagement and innovation cadence could boost the stock from here. The bank initiated the coffee chain at a buy rating and $82 price target, which signals upside of 34%. Analyst Jon Tower applauded Dutch Bros’ extremely strong underlying brand fundamentals which have created a constant pace of social media content. These include the company’s unmatched pace of innovation and ongoing simple to execute “drops,” such as straw topper or sticker giveaways. Tower added that this strategy especially resonates with a younger customer base, which is especially meaningful when caffeine consumption for individuals tends to grow with age. BROS 1Y mountain BROS 1Y chart “We believe BROS has proven its portability across the U.S., and, beyond a multi-year ‘brand funnel’ tailwind (driven by footprint expansion and a fast-growing marketing budget), other key SSS levers are set to layer into the story in the coming 12-24 months,” Tower wrote. “Longer-term, we believe this on-trend concept (85% cold, 25% energy, ‘drops’/innovation that can constantly feed content into and out of social algorithms) is well positioned to win share despite our muted view of the coffee-away-from-home market, and that potential tailwinds in the model outweigh potential headwinds.” While the coffee chain currently has a relatively small footprint, Tower believes that it can continue to build from here. Longer term the company is targeting 7,000 stores in the U.S., including 3,500 in the markets it already operates in. Shares of Dutch Bros have added just 1% over the past 12 months. They advanced about 1% in the premarket following the rating change.
