Starbucks (SBUX, Financial) saw its stock surge by 28% after appointing Brian Niccol as CEO to lead reforms. Prior to Niccol's appointment, the stock had plummeted over 19% and was on track for a third consecutive year of decline. However, three months post-appointment, enthusiasm has waned with some analysts advising investors to sell.
Edward Lewis from Redburn Atlantic downgraded Starbucks from "neutral" to "sell," slashing the target price from $133 to $77, indicating a potential 22% downside over the next year. He noted that the costs of economic recovery aren't fully accounted for and highlighted the stock's high expected P/E ratio, leaving little room for error.
Following yet another disappointing earnings report, Niccol revealed plans to return Starbucks to profitability. His strategy includes menu simplification, reducing service time, and personalizing customer experience by writing names on cups. However, Lewis pointed out that since 2017, operational costs have been Starbucks' "Achilles heel," consistently outpacing revenue growth.
Concerns over visibility have risen since the company withdrew its FY2025 guidance. Despite Niccol's experience from Taco Bell and Chipotle potentially buying him time to revitalize Starbucks, the company has struggled with sustained growth, retracting long-term earnings guidance twice since 2020, alongside three consecutive quarters of declining U.S. comparable sales.
Redburn Atlantic is among six companies tracked by Bloomberg advising to sell Starbucks stock, up from three before Niccol announced recovery plans and recent earnings.
