In partnership with

Starbucks' CEO Shakeup Sends Stock Soaring – What’s Next for Investors?

Today, I’m breaking down the recent surge in Starbucks stock following the announcement of a new CEO. Let’s dive into what this means for the company and whether now is the time to invest.

Let’s do this!

Was this email forwarded to you?

The Key Story

Starbucks Stock is SURGING, Up 25% - Chipotle CEO Hired

Starbucks’ CEO Shakeup

Starbucks stock recently surged 24.5% after the company announced they fired their CEO, Laxman Narasimhan, and hired Brian Niccol, the current CEO of Chipotle, to take over. This news sent Starbucks stock soaring while Chipotle’s stock dropped by 7.5%. Investors are excited because under Niccol’s leadership, Chipotle’s stock grew more than 700% since he took over in March 2018.

What Led to the CEO Change?

Starbucks has been a massive success over the past two decades, but they’ve had a recurring problem: every time founder Howard Schultz steps down, the company seems to struggle with leadership. Schultz has returned multiple times to steer the company back on course, but each time he leaves, the company faces new challenges. Laxman, who was brought in with high expectations, saw the company’s earnings decline and lost investor confidence, especially after a disastrous Q2 earnings report that drove the stock down 18%.

The Impact of Brian Niccol’s Leadership

Niccol’s reputation as a successful turnaround CEO is what’s driving excitement. During his tenure at Chipotle, he significantly grew earnings and transformed the company’s stock from $6 to $51. The Starbucks board believes he is the right leader to restore Starbucks’ growth and profitability. Niccol’s focus on customer experience and innovation aligns with Howard Schultz’s original vision for Starbucks, which many believe is crucial for the company’s long-term success.

Starbucks’ Current Position and Challenges

Despite recent struggles, Starbucks remains a fundamentally strong company with high profitability and free cash flow. They pay a sustainable, growing dividend and are one of the most recognizable brands in the world. The challenge now is to capitalize on this strong foundation with effective leadership.

Should You Buy Starbucks Stock Now?

Following the stock surge, Starbucks is currently priced at $95.95 with a P/E ratio of 26.8. The current dividend yield is 2.38%. Analysts had a consensus price target of $105.96 before the CEO news, indicating the stock might still be undervalued by 10%, though it’s now closer to fair value after the recent rally.

Starbucks is projected to have strong earnings growth in the coming years, with analysts expecting 13% annual EPS growth in 2025 and 2026. If the company can meet or exceed these expectations under Niccol’s leadership, shareholders could see good returns. However, it’s unlikely that Starbucks will replicate the 700% growth Chipotle experienced, but it could still be a reliable compounder in your portfolio.

Long-Term Growth Potential

Historically, Starbucks has shown strong growth with a 12.24% compound annual growth rate (CAGR) in revenue per share over the past 10 years. The company has a solid record of dividend growth, with a 10-year CAGR of 15.93%, though this has slowed recently. Their most recent dividend increase was 7.55%, and similar growth is expected going forward. The dividend is sustainable with a 58% EPS payout ratio and 66% free cash flow-based payout ratio.

Concerns and Final Thoughts

One area of concern is Starbucks’ growing debt, which has reached $21.9 billion. The company justifies this by citing high returns on new store openings, but there is a risk that slowing growth in free cash flow combined with rising debt could impact shareholder returns through dividends and share repurchases.

In conclusion, while Starbucks faces challenges, the hiring of Brian Niccol could be the catalyst needed to reignite growth and restore investor confidence. If you’re considering adding Starbucks to your portfolio, now could be a promising time, but it’s important to keep an eye on how the new leadership executes in the coming years.

The Rising Demand for Whiskey: A Smart Investor’s Choice

Why are 250,000 Vinovest customers investing in whiskey?

In a word - consumption.

Global alcohol consumption is on the rise, with projections hitting new peaks by 2028. Whiskey, in particular, is experiencing significant growth, with the number of US craft distilleries quadrupling in the past decade. Younger generations are moving from beer to cocktails, boosting whiskey's popularity.

That’s not all.

Whiskey's tangible nature, market resilience, and Vinovest’s strategic approach make whiskey a smart addition to any diversified portfolio.

Schedule a call with a Vinovest advisor to learn more.

Thanks for the read! Let me know what you thought by replying back to this email.

— Zach

Disclaimer: Dividend Dividend (Dividend Data LLC) is not a professional financial service. All materials released from Dividend Data (Dividend Data LLC) are for educational and entertainment purposes. Dividend Data (Dividend Data LLC) is not a replacement for a professional's opinion. Contributors to the Dividend Data (Dividend Data LLC) might have equities mentioned in the newsletter