Starbucks: Luring Brian Niccol Should Stimulate Sagging Coffee Chain

Key Morningstar Metrics for Starbucks

• Fair Value Estimate: $95.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

Starbucks Stock Update

Leadership matters. Starbucks SBUX certainly isn’t through the weeds as it navigates an extremely challenging consumer environment, but Wall Street favorite Brian Niccol joining its team should restore investor confidence in the battered brand.

As we digest the news, we plan to maintain our fair value estimates of $95 per share for Starbucks and $43 per share for Chipotle Mexican Grill CMG, where Niccol will serve as CEO until Aug. 31. We also maintain our Exemplary Capital Allocation Ratings for both firms, though we will reevaluate our outlook for Chipotle once a permanent successor to Niccol is named.

The chain will be served in the interim by COO Scott Boatwright, whose seven years of company experience (in tandem with retiring CFO Jack Hartung’s willingness to stay on “indefinitely” until a permanent CEO is announced) should assuage any immediate concern, despite Chipotle shares falling 7.5% Aug. 13 trading. Starbucks stock, meanwhile, surged 24.5%.

We’re particularly encouraged by Niccol’s sterling restaurant industry track record and favorable timing, the lack of which hampered a forgettable run by Laxman Narasimhan that began in April 2023.

In retrospect, our views outlined in a September 2022 note to clients have aged well. At the time, we wrote that “prima facie, the move strikes us as a curious one, particularly when juxtaposed against Howard Schultz’s commentary ... that his permanent successor would have domain expertise, sensitivity to the values and culture of Starbucks, global experience, and a commitment to leading for the long term.” Narasimhan’s lack of domain experience and standoffish demeanor likely contributed to his removal. But his biggest mistake was unfortunate timing; he stepped into the brand as a widening inflation gap between grocery stores and restaurants, pressure in the firm’s large Chinese market, and souring labor relations finally spilled over into results.