MKM Partners upgraded shares of Starbucks on Tuesday, saying recent underperformance presents a buying opportunity. "Despite an operating model facing near-term pressures related to internal decisions and macro-related factors, and the understanding that a straight-line recovery is unlikely, we are choosing to look past these short-term hurdles," MKM Partners' Brett Levy said. "We have long been supportive of SBUX's brand strength/scale; development opportunities; and the balancing of investments in its brand, people, technology and returns to the investment community," Levy added. Shares of Starbucks have underperformed the market in 2021, up 6% compared with the S & P 500's 22% gain this year. The stock is down more than 42% in the past three months. "We are using the recent softness to return to recommending SBUX's shares," Levy said. MKM Partners upgraded Starbucks to a buy rating from neutral. The firm also hiked its price target on the stock to $130 from $114. The new projection is about 15% higher than Starbucks' closing price Monday. Starbucks has faced increased costs due to investments in its workforce as companies compete to hire and retain workers. The company announced in October plans to hike its employees' wages at least twice in 2022, bringing the pay floor to $15 an hour faster than previously shared. However, MKM Partners believes these labor costs will pay off in the longer term. "After initially taking a more cautious view of management's sizable investment and near-term financial drag, we reconsider the moves as prudent under the current labor backdrop and believe this positions the company well as other companies are forced to play catch up on the labor line," Levy said. Shares of Starbucks rose more than 1% in the premarket Tuesday morning. —CNBC's Michael Bloom contributed reporting.
Starbucks coffee shop logo seen at one of their stores.
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MKM Partners upgraded shares of Starbucks on Tuesday, saying recent underperformance presents a buying opportunity.