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Wall Street analysts give luckin coffee stock optimistic reviews

Luckin coffee, China’s only Nasdaq-listed coffee chain (Nasdaq: LK), recently received two positive reviews from Keybanc and Needham, according to a Bloomberg report.

Keybanc analyst Eric Gonzalez gave luckin an “overweight” rating and USD 22 price target.  In his eyes, the company’s prospects look optimistic given China’s rapidly growing coffee culture coupled with luckin’s promising business model, low development costs, and lack of significant direct competitors. The brand likewise benefits from its focus on better tech and advanced data analytics.

“Luckin Coffee’s rapid ascent toward becoming one of China’s largest consumer brands has attracted its fair share of skeptics. However, we believe the company has several strategic advantages that should support its transition into a profitable business,” said Gonzalez in a research note.

Needham gave luckin’s stock an even more optimistic price target of USD 27 along with a “buy” rating. “By utilizing its new technology-driven retail model and providing high-quality coffee products, affordability, and convenience to customers, we believe Luckin is disrupting the coffee industry in China,” the firm said in a research note.  

Founded in 2017, luckin coffee has become China’s fast-growing unicorn to go public within 18 months. The chain’s stock surged 47% on the first day of trading despite an IPO priced at USD 17 per ADS (American Depositary Share).

Luckin’s expansion is fueled by the massive potential of China’s coffee consumption market.  According to Frost & Sullivan, the amount of coffee consumed in China is expected to increase to 10.8 cups per capita (15.5 billion cups) by 2023.  

Having opened 2,370 stores as of March 2019, luckin currently plans to expand to a total of 4,500 stores by the end of the year. During a conference held at its Xiamen headquarters on May 29, the chain announced its aim to open 10,000 shops by the year 2021.

The core driver of advanced technology helps luckin set its ambitious expansion plans. Qian Zhiya, the company’s founder, has pointed out that the chain’s business model aims to fundamentally change the industry’s transaction structure through innovation and the application of advanced technology, thereby significantly reducing transaction costs. At the same time, luckin seeks to provide customers with high-quality, convenient, and affordable products through coordinated efforts with top suppliers across various fields.

(Top photo from luckin)

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