Starbucks and new CEO Brian Niccol, a perfect match? Why we’re holding the stock to find out

Days after Starbucks skyrocketed on its stunning CEO change , shareholders may wonder what to do with the stock. It’s a more than understandable question because large-cap stocks rarely add 24.5% in one session — like Starbucks did Tuesday following news that Brian Niccol will leave Chipotle Mexican Grill and replace embattled CEO Laxman Narasimhan at the coffee giant. In March 2023, we were willing to give Narasimhan the benefit of the doubt when the former Reckitt Benckiser CEO and PepsiCo executive took over for three-time Starbucks leader Howard Schultz. But the writing was on the wall about a year later when Narasimhan failed to take accountability for a terrible fiscal 2024 second quarter. The day after the April 30 earnings, Jim Cramer blasted Narasimhan in a CNBC interview for not acknowledging the severity of the problems facing Starbucks. Jim has always described Niccol as one of his favorite CEOs and was thrilled with the announcement. We have high expectations for what Niccol can do at Starbucks considering how successful he has been at Chipotle and the extraordinary value he brought to shareholders of the Mexican restaurant chain since he took over as CEO in March 2018. While blessing a quick flip for members who bought Starbucks shares when the Club did on July 29 at just over $75 per share, Jim Cramer said Wednesday during the Club’s August Monthly Meeting that he thinks investors will be rewarded for sticking around. The stock gave back just over 2% on Wednesday but remained around $94. Jim thinks Starbucks could be a buy on a pullback. Niccol, who takes over at Starbucks on Sept. 9, will assume the reigns at a tricky time for the company. Despite Tuesday’s surge, the stock was still a few percent lower in a year when the S & P 500 has gained 14%. Starbucks shares were also 13% away from their 52-week high of $107.66 and about 25% short of their all-time high of $126.32 in July 2021. In terms of valuation, the stock remains attractive at about 24 times fiscal year 2025 earnings estimates and below the nearly 28 times average forward multiple over the past five years. SBUX 5Y mountain Starbucks performance over 5 years A stock being down is not a reason in and of itself to own it, and the suppressed multiple has not stopped it from being a loser in the recent past. So, why stick with it — because we’re now getting a new leader who is up to the task of tackling the unique issues that have plagued Starbucks and stock in recent quarters. For starters, Niccol has major experience operating fast causal chains like Starbucks. Before serving as CEO of Chipotle, Niccol was the CEO of Taco Bell and before that Taco Bell’s chief marketing and innovation officer. That’s exactly what Starbucks needs, a proven leader who can change the narrative and reinvigorate the company. In other words, Niccol brings with him over a decade of relevant experience whereas Narasimhan’s prior experience was focused more on packaged goods where the in-store experience just isn’t a factor in determining success. Niccol didn’t have to deal with China at Chipotle. But he was at Taco Bell when the China operations of Yum Brands-owned Taco Bell, KFC, and Pizza Hut, became a new separate company Yum China in 2016. Taco Bell operates in far more countries than Chipotle, which gives Niccol the international experience that will be necessary to navigate Starbucks’ opportunities around the globe and to adapt to varying consumer preferences. It will be interesting to see how Niccol goes about addressing Starbucks’ planned China expansion efforts. We know he knows how to expand a footprint, which is what Starbucks has promised to do in the world’s second-largest economy. Between Dec. 31, 2018 and Dec. 31, 2023, Chipotle’s operations expanded from 2,491 locations to 3,437, a nearly 38% increase. Domestically, what Niccol has learned in terms of blending the in-store experience with mobile ordering at Chipotle can be hugely helpful at Starbucks. Niccol is also no stranger to brand controversy, taking the helm at Chipotle in 2018 and helping the company navigate salmonella and E.coli outbreaks. Starbucks thankfully doesn’t have any health scares to deal with, but it does have brand issues in terms of customer complaints of being too expensive and too slow to serve. Unhappy workers at some locations have sought to unionize. Starbucks is also combating the erroneous perception that it has a political stance in the Israel/Hamas war. Bottom line What Starbucks needs is someone who knows how to market and innovate, figure out China, revamp the in-store and digital experiences here in the U.S., and foster more trust with employees. Niccol checks all the boxes and has proven success in all of these areas. That’s why we think there will be plenty of upside at Starbucks in the quarters to come as Niccol hits the ground running next month to improve operations and make the company more efficient to the benefit of earnings. Should Niccol need help in turning Starbucks’ business around, he’s got Elliott Management and Starboard Value in his corner as activist shareholders. For the skeptics, had you sold Chipotle stock on the 15% gain after Niccol was announced as CEO in February 2018, you would have missed out on an additional 792% gain as of Monday’s close. Can repeat even just a bit of that magic at Starbucks? We think it’s worth sticking with him to find out. CMG mountain 2018-03-01 Chipotle performance since March 2018 (Jim Cramer’s Charitable Trust is long SBUX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Chipotle Mexican Grill CEO Brian Niccol speaks with CNBC’s Kate Rogers at the CNBC Evolve conference November 19th in Los Angeles.

Jesse Grant | CNBC

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