The Analysts See Value In Dutch Bros Inc.

Dutch Bros Inc Bottoms On Mixed Results 

Dutch Bros Inc. NYSE: BROS issued a mixed report and garnered at least one price target reduction because of it, but the analysts still see value in the stock. The single price target reduction to hit our radar comes from Cowen which lowered the target to $65 and is in line with the broad Marketbeat.com consensus figure. Cowen, notably, maintained an outperform rating on the stock which, by the way, carries a consensus of firm Buy. The $65 consensus target is nearly 50% above the current price action and we think moving higher over the long term. As it is now, the consensus target is up 3.6% since the IPO but down slightly over the past 30 days. 

The institutions are buying this stock as well, so there is support for the market. The institutions have netted more than 6.1% of the float since the IPO and we think their activity will pick up over the next quarter or two. While the Q4 results were mixed, the top line came in better than expected and there are at least two catalysts for price movement that we see. 

The first is that margins should widen over the course of calendar 2022 due to pricing actions, internal efforts, and easing cost pressures in the back half of the year. The second is the company’s growth trajectory. The company is competing well with Starbucks in its own home territory and just upped it store-count forecast by another 20% to over 761, a small number that suggests many more new stores are in the future. 

Dutch Bros Inc. Bottoms On Mixed Results 

Dutch Bros Inc. reported mixed results but there is a mitigating factor to negate any negativity in the news. While earnings grew YOY, the $0.02 in adjusted EPS missed by a penny. The mitigating factor is that figure includes the costs of accelerating store openings and deferred costs for store opening that occurred late in Q3. The takeaway is the company’s pace of openings reached a record in Q4 and appears to be accelerating. As for revenue, revenue grew 55.8% to $140.08 million and topped the Marketbeat.com consensus figure by 400 basis points. The strength was driven by a system-wide comp of 10.1% and a 66.1% increase in revenue from company-owned stores. 

Moving down, the company’s guidance is on the weak side but we see upside risk in the numbers. The company is expecting revenue in the range of $700 to $715 million compared to the $716 consensus. In our view, with store openings accelerating and new stores opening with traffic above the system average, we think the consensus will be easy to beat. 

A Short-Squeeze In The Making 

Shares of Dutch Bros Inc were as much as 30% short going into the Q4 report. The report did not spark a massive implosion in share prices so we think short-covering has begun or will begin soon. If so, short-covering could sustain a rally as high as the $60 level but, if the covering turns into a massive rush for the exits, the short-squeeze could take the stock well above the $60 level. 

The Technical Outlook: Dutch Bros Inc. Hits Bottom 

Shares of Dutch Bros hit the bottom a few days before the earnings were released, bounced, and are now testing that support again. Price action is so far above the key level of $42.82 and look like they could easily start moving higher. Assuming the market starts pushing the stock upward, the first target for resistance is at the short-term moving average near $50. If the stock move lower, however, and breaks support a move down to retest support at the $40 is likely.