3. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 70
Starbucks Corporation (NASDAQ:SBUX) is a global leader in coffee roasting, marketing, and retailing. The company’s stores offer a wide variety of products, including coffee and tea beverages, whole and ground beans, single-serve options, ready-to-drink beverages, and an array of food items such as pastries, breakfast sandwiches, and lunch offerings.
Cramer is an SBUX bull because of the new CEO. Recently, Brian Niccol took the helm at the company. It was a transition from his successful tenure as CEO of Chipotle, where he played a crucial role in revitalizing the brand after a health crisis. Niccol’s expertise in marketing and store operations could be vital for navigating the current challenges the company faces.
Cramer highlighted the contrasting perspectives from analysts following a recent downgrade by Jefferies and an upgrade from Bernstein. On September 24, Jefferies downgraded the stock to Underperform from Hold with a price target of $76, down from $80. The analysts expressed concerns that its business recovery will require time and could incur significant costs, potentially impacting short-term earnings.
Conversely, on September 26, Bernstein upgraded Starbucks (NASDAQ:SBUX) to Outperform from Market Perform with a price target of $115 from $92. The analysts are optimistic about the company’s new leadership and believe that even without a complete turnaround, the stock could still perform well due to long-term growth potential.
“Like the bulls at Bernstein, I’m willing to look through a weak year if it means Starbucks can come out the other side much stronger, and I believe Brian Niccol can pull that off,” Cramer said.
During its fiscal Q3 earnings call, management emphasized a strong focus on improving operational execution across nearly 10,000 U.S. company-operated stores, viewing this as essential to the company’s immediate strategy.
Currently, the company operates 39,477 locations globally, with aspirations for significant expansion. By 2030, the company aims to increase its footprint to 55,000 stores and emphasizes growing its presence in China. Additionally, executives plan to expand in the U.S., increasing the number of stores from 16,730 to 20,000 over the long term.
In September, China’s central bank introduced a comprehensive set of measures designed to stimulate the struggling economy. Pan Gongsheng, the Governor of the People’s Bank of China (PBOC), revealed plans to reduce borrowing costs and give the green signal to banks to expand their lending activities.
He mentioned that the central bank would decrease the reserve requirements for banks. Additionally, measures aimed at revitalizing the troubled property market include lowering interest rates on existing mortgages and reducing the minimum down payment for all types of homes to 15%.
While highlighting that China is Starbucks’ (NASDAQ:SBUX) second-largest market, Cramer noted that these developments should lead to a stronger economy and improved business prospects for companies like Starbucks, which have significant exposure to China and have faced competition from lower-priced alternatives.
Diamond Hill Capital stated the following regarding Starbucks Corporation (NASDAQ:SBUX) in its Q2 2024 investor letter:
“Starbucks Corporation (NASDAQ:SBUX) is the global leader in the coffee industry. Given its significant scale, we believe Starbucks can maintain its average ticket growth and drive decent traffic growth, which should allow for some margin expansion. While macroeconomic and competitive pressures remain intense in China, the country accounts for a minimal percentage of today’s earnings, and we believe the current valuation embeds little to no contribution from China over the long term, which we view as too cynical. As the share price declined recently amid near-term concerns surrounding store sales in North America and China, we capitalized on what we considered an attractive entry point.”
