by: Wayne Duggan, Benzinga Staff Writer
After 40 years at Starbucks Corporation SBUX 2.1%, founder Howard Schultz announced he is leaving the company later this month. Starbucks stock dipped 3 percent Tuesday following the announcement, and several Wall Street firms weighed in on the potential impact on the coffee chain. Here’s a sampling of what they had to say.
Sticking To The Plan
Bernstein analyst Sara Senatore said the timing of the announcement was a surprise, but Schultz had been taking an increasingly hands-off approach to his Starbucks leadership. “While management is still contemplating where Siren Retail fits into its overall strategy, a returns-minded approach may dictate a change in investment cadence (easier now that Schultz is no longer involved in the day to day),” the analyst said.
Siren Retail is the umbrella group over Starbucks' specialty Roastery, Starbucks Reserve and Princi stores
William Blair analyst Sharon Zackfia said the Siren Retail strategy will remain central to the company’s plan moving forward without Schultz — and Starbucks still has a lot to prove about the viability of its Reserve store model.
Schultz's departure creates "an almost unbridgeable gap," but the brand remains healthy, Zackfia said. The analyst expects investor focus to turn to China and the Asia-Pacific region, which is contributing more and more to Starbucks' sales and profit numbers.
Morningstar analyst R.J. Hottovy said Schultz is irreplaceable, but investors should remain confident in Starbucks’ long-term outlook.
“While we recognize investor frustration with U.S. comp trends and still believe they will take time to stabilize, we believe the combination of China's leadership, new channel diversification opportunities and capital allocation ($20 billion expected to be returned to shareholders between 2018 and 2020) offers several reasons to stay with this name."
Execution Is Key
Schultz’s departure is certainly a loss, but change can be a good thing, Morgan Stanley's John Glass said in a note.
“SBUX is today at an important crossroads in its strategy — streamlining the portfolio, eliminating ancillary businesses and focusing on its core — and this event perhaps could even further accelerate this process as the new leadership team … sculpts the company's future with its own ideas."
Baird analyst David Tarantino said Schultz’s departure has contributed to his increasingly negative bias toward Starbucks stock. “While we are cautiously optimistic the remaining leadership team can execute current strategies effectively, we believe the departure of Schultz adds a new risk factor to the near-term investment thesis on SBUX,” Tarantino said.
Schultz’s departure won’t impact Bank of America Merrill Lynch analyst Gregory Francfort's forecast for an uptick in Starbucks comps in the second half of 2018: "We think shares remain attractively valued for a high single-digit unit growth story, assuming the company is able to post a comp that avoids material margin deleverage."
Ratings And Price Targets
- Bernstein has a Market-Perform rating and $64 target.
- Morgan Stanley has an Overweight rating and $72 target.
- William Blair has an Outperform rating.
- Baird has an Outperform rating and $65 target.
- Bank of America has a Buy rating and $65 target.
- Morningstar has a Fairly Valued rating and $68 fair value estimate.
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