Starbucks Stock Brews Gains After Bernstein Upgrade On New CEO Factor: Retail Stays Optimistic

Shares of Starbucks Corp. (SBUX) rose 1.6% on Thursday, following an upgrade from Bernstein, which sees new CEO Brian Niccol as a key driver of the company’s turnaround.

The brokerage cited his past success at Taco Bell and Chipotle Mexican Grill (CMG) to guide Starbucks through its current operational challenges.

Niccol, who officially joined the coffee chain on Sept. 9, is expected to help shift Starbucks’ focus from rapid growth to operational stability, according to the analysts.

On Stocktwits, retail sentiment for the stock remained firmly ‘bullish’ amid a slight uptick in message volume, reflecting confidence in Niccol’s leadership and the company’s long-term potential.

Bernstein believes this will lead to management changes and a more streamlined structure, reducing general and administrative (G&A) expenses to historic lows of around 6%, and also free up resources for greater efficiency and decision-making within the company.

Starbucks’ G&A expenses, as of its most recent earnings report for the quarter ending July 30, 2024, were already reduced to $576 million (6.3% of total net revenue), from $604.3 million (6.6% of total revenue) a year earlier.

In terms of margins, Bernstein projects that Starbucks will see a return to pre-COVID operating margin levels of 18.5%, driven by improved efficiency from ongoing investments in labor, equipment, and technology.

While Starbucks’ operating margin slipped to 16.7% from 17.4% in the latest quarter, Bernstein analysts expect margins to eventually reach “historical highs” by 2028, thanks to the sales leverage and cost efficiencies unlocked by these investments.

Bernstein noted that since Niccol’s appointment, Starbucks shares have surged 27%, but the analysts argue the stock still offers an attractive entry point for long-term investors.

SBUX stock is up 3.7% year-to-date.

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