Morgan Stanley starts coverage on Dutch Bros at ‘OW’ on market share growth

Investing.com -- Morgan Stanley initiated coverage of Dutch Bros with an Overweight rating and a price target of $82 on the company’s strong growth trajectory and potential for further expansion.

Dutch Bros has rapidly grown to become the third-largest player in the $60 billion U.S. beverage shop market, yet it still holds only about 3% of the market share, Morgan Stanley (NYSE:MS) said.

Brokerage believes the company’s new management team is driving positive developments, with strong unit growth and improved comparable sales (comps) performance.

Dutch Bros’ management has revamped its growth pipeline, giving Morgan Stanley confidence in mid-teens annual unit growth.

Morgan Stanley validated the company’s target of 4,000+ stores with a potential bull case of over 9,000 locations.

Mobile ordering, launched in 2024, is expected to drive incremental sales alongside ongoing marketing and innovation efforts.

Morgan Stanley highlighted Dutch Bros’ compelling shop margins around 30%, with further margin expansion expected through operating leverage.

“G&A leverage is steadily improving, and incremental shop margins look achievable if comps remain solid,” the note added.

The firm also sees potential for food sales, currently being tested for a 2026 rollout, to contribute meaningfully, noting that food accounts for about 23% of sales at Starbucks (NASDAQ:SBUX).

While acknowledging consumer concerns and competition from larger players like Starbucks, Morgan Stanley believes Dutch Bros’ growth trajectory remains intact.

The firm’s $82 price target is based on a ~44x 2026 EBITDA multiple, reflecting continued EBITDA growth of 20% or better over the medium term.

Morgan Stanley also noted Dutch Bros’ first investor day on March 27, where management is expected to provide updates on development, unit economics, and sales initiatives.