Starbucks Stock Primed for Growth Under New CEO Niccol’s Vision

Key Points

• Brian Niccol is exactly what Starbucks needs: a CEO with the vision and experience to effect a meaningful turnaround. 
• The FQ4 results were weak, but as expected, given the trends, the question is how long until Niccol's efforts show results.
• Analysts sentiment firms around the price target of $100, indicating the stock is fairly valued today. 

Brian Niccol is exactly what Starbucks NASDAQ: SBUX needs, which is why the stock price will move higher soon and sustain an uptrend over time. His experience with Chipotle Mexican Grill NYSE: CMG makes him a perfect match for the company. His ability to focus on the brand, product quality, and flow through while simultaneously growing the fast-casual business is central to the turnaround and why it sustains a double-digit CAGR. Starbucks is a much larger company, but it needed a reboot, which, after multiple failed attempts, only an outsider with this experience can provide. Regarding the share price action, shares of CMG advanced from $6 to $66 under his guidance. 

Mr. Niccol’s first moves are bold and broad, focusing on a fundamental change in the strategy and execution. He wants to take Starbucks back to when it was a friendly neighborhood coffee shop where people could meet, talk, and socialize. To that end, he’s bringing back ceramic mugs, improving selection, and focusing on flow-through. The idea is that reducing the time between orders and pick-ups will drive customer satisfaction while improving financial results, as it has with Chipotle. He’s calling his plan Back to Starbucks. 

Unsurprisingly, Mr. Niccol’s focus is on digital. Digital is a key element in Starbucks sales but is problematic at peak hours. The influx of orders makes fulfillment challenging and can result in a significant time lag between order and delivery to the customer, not to mention long wait times for in-house guests. Part of the solution is staffing, ensuring there are enough hands on deck at peak hours and, perhaps like Chipotle, staff that only handle digital orders. Another part of the solution is to bring back the coffee condiment bars, a move requested by staff and customers. The staff says it will improve output speed, and customers want to customize their own brew. Longer-term plans focus on China and emerging consumer growth markets outside of China. 

Starbucks Reports Weak Q3, As-Expected

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