Days after Starbucks soared following its surprise CEO change, shareholders may be wondering what to do with the stock. It’s a more than understandable question, as large-cap stocks rarely gain 24.5% in one session – as Starbucks did on Tuesday when it announced that Brian Niccol would leave Chipotle Mexican Grill and replace controversial CEO Laxman Narasimhan at the coffee giant. In March 2023, we were willing to give Narasimhan the benefit of the doubt when the former Reckitt Benckiser CEO and PepsiCo executive took over from three-time Starbucks chief Howard Schultz. But about a year later, fate was sealed when Narasimhan failed to take responsibility for a terrible second quarter of fiscal 2024. The day after the April 30 earnings release, Jim Cramer sharply criticized Narasimhan in a CNBC interview for failing to acknowledge the severity of Starbucks’ problems. Jim has always called Niccol one of his favorite CEOs and was thrilled by the announcement. “We have high expectations for what Niccol can do at Starbucks, given how successful he was at Chipotle and the extraordinary value he has brought to the Mexican restaurant chain’s shareholders since taking over as CEO in March 2018.” While he blessed a quick turnaround for members who bought Starbucks stock when the club did so on July 29 at just over $75 a share, Jim Cramer said Wednesday during the club’s monthly meeting in August that he believes investors will be rewarded for sticking around. The stock fell a little over 2% on Wednesday but remained at around $94. Jim believes Starbucks could be a buy on a dip. Niccol, who takes the helm at Starbucks on Sept. 9, will take the reins at a difficult time for the company. Despite Tuesday’s surge, the stock was still several percent lower in a year that saw the S&P 500 gain 14%. Starbucks shares were also 13% below their 52-week high of $107.66 and about 25% below their all-time high of $126.32 in July 2021. In terms of valuation, the stock remains attractive at about 24 times fiscal 2025 earnings estimates and below nearly 28 times the average forward multiple over the past five years. SBUX 5Y Mountain Starbucks 5-Year Performance A falling stock is not, in and of itself, a reason to own it, and the low multiple has not saved it from being a loser in the recent past. So why stick around—because we’re now getting a new leader who’s up to the task of addressing the unique issues that have plagued Starbucks and its stock over the past few quarters. For starters, Niccol has extensive experience running fast-casual chains like Starbucks. Prior to becoming CEO of Chipotle, Niccol was CEO of Taco Bell, and before that, Taco Bell’s chief marketing and innovation officer. That’s exactly what Starbucks needs: a proven leader who can change course and rejuvenate the company. In other words, Niccol brings over a decade of relevant experience, while Narasimhan’s prior experience focused more on packaged goods, where the in-store experience simply isn’t a critical factor for success. Niccol didn’t have any exposure to China at Chipotle. But he was at Taco Bell when the China operations of Yum Brands’ Taco Bell, KFC and Pizza Hut were spun off into a new, separate company, Yum China, in 2016. Taco Bell operates in far more countries than Chipotle, giving Niccol the international experience needed to capitalize on Starbucks’ capabilities around the globe and adapt to different consumer preferences. It will be interesting to see how Niccol approaches Starbucks’ planned expansion efforts in China. We know he knows how to grow his presence, and that’s exactly what Starbucks has promised to do in the world’s second-largest economy. Between December 31, 2018, and December 31, 2023, Chipotle’s operations expanded from 2,491 to 3,437 locations, an increase of nearly 38%. What Niccol learned domestically about combining the in-store shopping experience with mobile ordering at Chipotle can help Starbucks tremendously. Niccol is also no stranger to brand controversy. In 2018, he took the helm at Chipotle and helped the company navigate salmonella and E. coli outbreaks. Starbucks, thankfully, has no health issues, but there are brand issues in the form of customer complaints about overpriced and slow service. Unhappy employees at some locations have tried to unionize. Starbucks is also fighting the false perception that it is taking a political stance in the war between Israel and Hamas. Bottom line: What Starbucks needs is someone who knows how to market and innovate, who knows how to understand China, improve the store and digital experience here in the U.S., and build more trust with employees. Niccol checks all the boxes and has proven success in all of those areas. That’s why we believe there’s a lot of upside at Starbucks in the quarters to come as Niccol hits the ground running next month to improve operations and make the company more efficient, which will positively impact earnings. Should Niccol need help getting Starbucks back on track, he has Elliott Management and Starboard Value on his side as activist shareholders. For the skeptics, had you sold Chipotle shares at the 15% gain after Niccol was announced as CEO in February 2018, you would have missed out on another 792% gain by Monday’s close. Can Starbucks replicate even a bit of that magic? We think it’s worth sticking with him to find out. CMG Mountain 3/1/2018 Chipotle performance since March 2018 (Jim Cramer’s Charitable Trust is long SBUX. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. After sending a trade alert, Jim waits 45 minutes before buying or selling a stock from his Charitable Trust’s portfolio. When Jim has discussed a stock on TV, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION MENTIONED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO PARTICULAR RESULT OR RESULT IS GUARANTEED.
Chipotle Mexican Grill CEO Brian Niccol speaks with CNBC’s Kate Rogers at the CNBC Evolve conference in Los Angeles on November 19.
Jesse Grant | CNBC
Days later Starbucks after the surprise CEO change, shareholders may be wondering what to do with the stock. It’s a more than understandable question, since large-cap stocks rarely gain 24.5% in one session – like Starbucks did on Tuesday after the news that Brian Niccol will be leaving the company. Chipotle Mexican Grill and replace controversial CEO Laxman Narasimhan at the coffee giant.
