Starbucks In 'Capable Hands' After 'Surprising' CEO Change, Analysts Say
Shares of Starbucks (SBUX) are slipping after the company announced that CEO Howard Schultz will be stepping down from that post, with COO Kevin Johnson assuming the role. The news has been met with mixed reactions from Wall Street analysts.
CEO TRANSITION: Starbucks announced last night that CEO Howard Schultz is stepping down and will be appointed the executive chairman, shifting his focus to design and development of Starbucks Reserve Roasteries around the world. Kevin Johnson, president, and chief operating officer, will assume the role and responsibilities of president and CEO, effective April 3, 2017.
"CAPABLE HANDS": After Starbucks announced the "surprising" CEO transition, Oppenheimer analyst Brian Bittner said that while disappointing to see a "visionary and founder" step back from day-to-day operations, the company is left in the "capable hands" of Kevin Johnson. Moreover, the analyst does not believe Howard Schultz would step away from daily operations without feeling the same way. He reiterated an Outperform rating on the shares. His peer at RBC Capital also believes leaders inside Starbucks are confident that Kevin Johnson is the right CEO for the company. The analyst, David Palmer, told investors in a note of his own that Schultz will be more focused than ever on innovation and the future of brand in his new role, and noted that his involvement in the company will not diminish soon. Further, Palmer pointed out that the company is transitioning to a new CEO during a period of strength, unlike the period surrounding Schultz's previous departure.
TIMING SOMEWHAT SURPRISING: While not surprised that Schultz has chosen to step back from day-to-day operations and that Johnson was appointed his replacement, Stifel analyst Mark Astrachan views the timing as notable given the heightened level of strategic endeavors Starbucks currently has ongoing. Further, the analyst told investors that he thinks the management transition signals the company's increasing focus on technology to drive the customer experience, including Mobile Order & Pay.
UNCERTAINTY AHEAD: Goldman Sachs analyst Karen Holthouse noted that during Starbucks' conference call to discuss its CEO transition, the company referenced a 5-year plan that would be discussed at next week's analyst day. The analyst believes the greater focus on the December 7 analyst day will be difficult to avoid but pointed out that the call reassured that no pivot from in-store innovation is underway. Nonetheless, Holthouse said that a degree of investor uncertainty is likely. Meanwhile, Baird analyst David Tarantino told investors that he thinks the CEO transition poses an additional risk for Starbucks when looking longer term, especially if the change proves to be a precursor to Schultz becoming less involved in the business over the next several years. Based on this risk, the analyst said he suspects the CEO change will give investors some anxiety, particularly when considering that the company's operating performance suffered in the mid-to-late 2000s after Schultz previously stepped down from the CEO role. Tarantino reiterated an Outperform rating on the stock but lowered his price target on the shares to $65 from $68.
PRICE ACTION: In afternoon trading, shares of Starbucks have dropped over 2% to $57.28.
Disclosure: None