Starbucks Corporation (SBUX), the world’s largest coffee chain, made a surprising leadership change last week by appointing Chipotle Mexican Grill (CMG) CEO Brian Niccol to lead the company from September 9. This CEO change is likely to unlock hidden value in the coming years, and the market rewarded this strategic move by sending Starbucks stock more than 20% higher in the first trading session following the announcement.
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Building on this favorable momentum, Wall Street analysts also reacted positively to this leadership change in the days that followed, further boosting investor sentiment. I am bullish on the prospects for Starbucks, as I believe the coffee giant has room for a meaningful improvement in its financial performance in the next few years.
A Leaf Out of SBUX’s History Books
As I review the historical performance of Starbucks stock under different CEOs, my bullish sentiment is reinforced by the evidence suggesting that strong leadership has historically been a key driver of stock performance. The table below summarizes data going back to Starbucks’ IPO in 1992.
| CEO | Tenure | Stock market performance |
| Howard Schultz | 1987 to May 30, 2000 | 1,130% |
| Orin C. Smith | June 1, 2000 to March 31, 2005 | 197.3% |
| Jim Donald | April 1, 2005 to Jan. 5, 2008 | -29.34% |
| Howard Schultz | Jan. 6, 2008 to April 2, 2017 | 544.8% |
| Kevin Johnson | April 3, 2017 to April 3, 2022 | 56.55% |
| Howard Schultz | April 4, 2022 to March 19, 2023 | 12.04% |
| Laxman Narasimhan | March 20, 2023 to Aug. 13, 2024 | -22.85% |
As evident from the above data, Starbucks stock has performed exceptionally well under Howard Schultz, which coincides with major turnarounds of the company that shaped the business into a global brand. This historical pattern reinforces my bullish view on how a new CEO could similarly drive significant positive change.
Why Starbucks Needs a Strategic Pivot
Despite my bullish outlook on Starbucks’ future, it is important to acknowledge the current issues that necessitate a strategic pivot. The lackluster stock market performance of Starbucks under the current CEO Laxman Narasimhan, as discussed earlier, reflects a significant decline in comparable sales growth. This decline is attributed to several critical factors.
Starbucks reported a 3% year-over-year (YoY) decline in same-store sales for the third quarter of Fiscal 2024, ending in June, after a 4% YoY decline in the previous quarter. This suggests that the company is struggling to grow. Same-store sales growth has significantly decelerated from 10% a year ago, leading to speculation that Starbucks is losing favor among global consumers.
This disappointing performance is due to several factors. The company has faced increasing difficulties with mobile orders, leading to crowded counters and frustrated customers. Consequently, consumers have sought alternatives to avoid this inefficiency, a challenge Starbucks has yet to address. Former CEO Howard Schultz, appearing on a podcast last June, identified fixing the mobile ordering system as the biggest challenge facing Starbucks today.
Moreover, according to Nancy Tengler, CEO of Laffer Tengler Investments, Starbucks’ brand identity has shifted with the rise of mobile app ordering. The company now focuses on volume, efficiency, and customer convenience, which contrasts with its founding values of encouraging customers to spend more time in stores.
Additionally, Starbucks has encountered boycotts in the Middle East due to tensions in Gaza, impacting the company’s brand image and sales in that region. Earlier this year, Starbucks lowered its full-year comparable sales guidance from a midpoint of 6% to 5% due to challenges in the Middle East. To mitigate the impact, Starbucks also laid off thousands of employees in the region to improve operational efficiency.
What to Expect from New CEO Brian Niccol
In light of the current challenges, my bullish outlook is greatly buoyed by the appointment of Brian Niccol as CEO. Empirical evidence suggests that a dynamic CEO with a clear strategy can significantly impact Starbucks’ stock performance, reinforcing my positive view on this leadership change.
Incoming CEO Brian Niccol appears well-positioned to tackle many of the challenges facing Starbucks today, including the mobile ordering issues discussed previously. In the last quarter, more than a third of Chipotle’s revenue came from online orders, showcasing the company’s success in adapting to the digital age. Brian Niccol led significant changes at Chipotle to enhance mobile readiness, such as introducing Chipotlanes for online order pickup, increasing staff dedicated to mobile orders, and launching deals and rewards programs for online customers.
Furthermore, when Brian Niccol took charge at Chipotle in 2018, the company was grappling with food safety issues and customer satisfaction challenges similar to those Starbucks faces now. According to Neil Saunders, GlobalData Retail Managing Director, Brian Niccol’s extensive understanding of the fast-food service industry positions him well to revive Starbucks’ growth, making him a strong candidate to navigate the current challenges.
Is Starbucks a Buy, According to Wall Street Analysts?
The positive reaction from Wall Street analysts to Brian Niccol’s appointment as CEO strengthens my bullish sentiment. The majority of analysts believe that he has the capability to address the key growth limitations facing Starbucks.
CFRA analyst Siye Desta increased his Starbucks price target to $109 last week, noting that the new CEO’s success at Chipotle suggests he will replicate that achievement by hiring more Gen Z workers who are less likely to unionize, addressing some recent challenges due to unionization efforts. Deutsche Bank analyst Lauren Silberman described hiring Brian Niccol as a home run for Starbucks, citing his strengths in operations, marketing, and innovation.
Moreover, UBS analyst Dennis Geiger, Stifel analyst Chris O’Cull, and Morgan Stanley analyst Brian Harbour were among other notable analysts who turned positive on Brian Niccol’s hiring last week. They believe that Niccol will contribute positively to Starbucks’ brand value through strategic initiatives that will drive the company back into growth mode.
Despite these positive remarks, Starbucks still appears to be expensively valued according to Wall Street ratings. Based on the assessments of 27 analysts, the average SBUX price target is $86.26, which implies a downside risk of 7% from the current market price.
I believe Starbucks will see more analyst upgrades as we approach September 9, when Brian Niccol will take the helm. Addressing primary growth obstacles, such as mobile ordering challenges, should facilitate earnings growth in the long term. I am confident that the new CEO will focus on enhancing the customer experience by revamping the food menu to complement its high-quality beverage offerings, leading to higher average ticket prices. For these reasons, I remain bullish on Starbucks’ growth prospects.
The Takeaway: An Exciting Future Awaits Starbucks Investors
In conclusion, Starbucks, which is currently facing several growth obstacles such as mobile ordering fulfillment issues, brand value deterioration, boycotts in the Middle East, and unionization efforts in the U.S., will enter a new turnaround phase with the appointment of Brian Niccol as CEO. Wall Street analysts are increasingly bullish on Starbucks, as the new CEO has proven his expertise in handling similar challenges at Chipotle. With the odds of a successful turnaround improving, I remain bullish on the long-term prospects for Starbucks.
