3. Starbucks Corp (NASDAQ:SBUX)
Number of Hedge Fund Investors: 70
While talking about SBUX new CEO, Cramer said in a latest program:
“I’m a huge fan of this man. He is a turnaround artist, exactly what Starbucks needs right now. The stock starts from $77 to $97 and change since his appointment, with the vast bulk of those gains coming pretty much immediately.”
Cramer then talked about a bear case and bull case pitched by two analyst firms for Starbucks Corp (NASDAQ:SBUX), analyzing both. During this discussion, Cramer commented:
The stock market is all about expectations. If you wait until the turnaround is fully executed, you’re going to miss out on most of the gains. The whole show is predicated upon that concept.
After discussing the bull and bear case in detail, Cramer gave his own take on the stock:
“Look, we’ve got a substantial position in Starbucks Corp (NASDAQ:SBUX) for the charitable trust, and we haven’t sold a share since the news that Brian Niccol was taking over. So clearly, I am siding with the bulls on this one. Again, I don’t expect a strong fourth quarter. The new guy only started three weeks ago. I don’t expect particularly good earnings in 2025 either, although I’m not sure if that means flat earnings growth or a down year.
In the end, though, like the bulls at Bernstein, I’m willing to look through a weak year if it means Starbucks Corp (NASDAQ:SBUX) can come out the other side much stronger. I believe Brian Niccol can pull that off. It doesn’t mean the stock won’t sell off at management’s lower expectation, something I do expect. It means I recommend buying more Starbucks into weakness.”
Brian Niccol, the new SBUX CEO, is known for success in the industry, including leading Taco Bell and Chipotle. His experience in the Quick Service and Fast Casual formats is expected to bring significant value to Starbucks Corp (NASDAQ:SBUX). Niccol also has a history of turning around the digital side of business. Chipotle’s digital orders went up from 10-15% to over 40% during his tenure, which consistently boosted revenues and earnings.
Starbucks Corp (NASDAQ:SBUX) is also adjusting its strategy, focusing on coffee innovation and drive-through formats, similar to Dutch Bros. The new textured coffee drinks are likely to be priced competitively, with Niccol’s expertise in digital marketing expected to play a key role in positioning these offerings effectively, just as he did at Chipotle.
ClearBridge Large Cap Growth Strategy stated the following regarding Starbucks Corporation (NASDAQ:SBUX) in its Q3 2024 investor letter:
“Similarly, we took advantage of a business reset at Starbucks Corporation (NASDAQ:SBUX) in the third quarter to initiate a position in the global coffee retailer. A confluence of factors, including degraded store-level operations and long consumer wait times, consumer fatigue with high prices and weakening engagement among occasional Starbucks customers has led to declining U.S. same-store sales growth. While the path ahead will likely require reinvestment back into the business, there are many merits to Starbucks’ business including its strong brand name and category leading market position. In response to recent challenges, Starbucks has appointed change-agent CEO Brian Niccol, who we know from the Strategy’s ownership of Chipotle Mexican Grill during its turnaround. Niccol has a successful track record of investing in product innovation and fixing execution issues, which we believe are the primary challenges facing Starbucks today. Starbucks represents the kind of successful playbook we have executed on historically – focusing on high-quality businesses and brands while being disciplined around the entry point into investments with attractive risk-reward opportunities.”
