Starbucks Stock Jumps 20% After CEO Shakeup: Should US Investors Hold or Buy?

I came across a hold thesis on Starbucks on SA from Uttam Dey. In this article, we look at how Starbucks shares experienced a 20% jump followed by the announcement of a change in CEO after a decline in comparable-store sales for a second consecutive quarter. Starbucks shares were trading at $95.9 when this thesis was published, vs. closing price of $91.15 on September 6, 2024.

Starbucks Corporation is an American multinational chain of coffeehouses attributed to brewing the foamiest coffee and introducing a wide variety of coffee experiences. It is headquartered in Seattle, Washington, and has 38,038 stores in 80 countries. The company serves hot and cold coffee drinks including whole bean coffee, espresso, micro-ground instant coffee, caffe latte, full and loose-leaf teas, Frappuccino beverages, juices, snacks, beverages, pastries, and snacks.

SBUX seemed to have faced severe challenges under the leadership of CEO Narasimhan as the company’s quarterly performance went from bad to worst. The most recent FY24 quarter illustrates that Starbuck’s total sales went down to $9.1B, declining 0.6% y/y. This was the worst revenue performance in the 10 years of Starbucks operating history excluding the 2020 pandemic lockdowns that created demand-supply distortion. Declining sales were followed by a contraction of the coffee house’s operating income by 5.1% to $1.5B in Q3.

After the sales slump, the company decided to replace the CEO with Brian Niccol, and shares jumped more than 20% following the announcement. However, despite the record one-day jump a lot of financial nightmares await the new CEO. Despite the financial losses, the dividends have been consistent at $0.57 since 2023 and an annual dividend of $2.28 per share offering secured dividend payments to investors even with reducing profits. The company still faces pressure by activists and falling sales, a turnaround in the company’s financial situation may take 1-2 quarters which gives an ample opportunity to buy into the stock. We think it is still too early to buy, especially if the US economy goes into a recession.

SBUX is not on our list of the 31 Most Popular Stocks among Hedge Funds. As per our database, 70 hedge fund portfolios held SBUX at the end of the second quarter which was 69 in the previous quarter. While we acknowledge the potential of SBUX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as SBUX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.