New CEO's success not enough to justify buy rating for Starbucks: Oppenheimer

Oppenheimer analysts maintained a Perform rating on Starbucks (NASDAQ:SBUX ) despite the positive market response to the company's new CEO, Brian Niccol.

Since Niccol's appointment, Starbucks shares have surged by 22%, significantly outpacing the S&P 500 's 5% gain. Oppenheimer views this re-rating as justified but remains cautious about recommending the stock at current levels.

While acknowledging Niccol's impressive track record, particularly his success at Chipotle, Oppenheimer highlights key differences between the challenges he faced there and those at Starbucks.

The firm is "positively biased" toward Niccol's potential to optimize Starbucks' marketing, enhance digital and loyalty systems, and improve operational throughput. However, Oppenheimer notes that Starbucks faces more complex issues, such as "demand softness" stemming from a challenged price/value appeal, increased competition, and a highly saturated U.S. store base—challenges that were not present at Chipotle when Niccol took over.

Oppenheimer also raises concerns about Starbucks' 2025 earnings expectations, suggesting that the company may need to make significant investments to enable strategic adjustments under new leadership.

They explain that this could put pressure on the Street's current forecast of $3.96 EPS for fiscal 2025, which represents an 11% increase. The firm notes that many investors believe a reset of these expectations might be necessary.

In addition, Oppenheimer questions whether Niccol might apply a similar strategy to Starbucks as he did at Chipotle, which included closing underperforming units and slowing unit growth.

Oppenheimer says such actions could impact Starbucks' anticipated domestic expansion, which currently projects 613 new unit openings in fiscal 2025.

While Oppenheimer sees potential in Niccol's leadership, the firm is not yet convinced that it's enough to justify a buy rating for Starbucks at this time.

Source: Investing.com