Shock and awe in the restaurant sector as Starbucks’ CEO hire adds +$20B to its market cap

Starbucks Corporation (NASDAQ:SBUX) is the talk of the restaurant sector after the coffee chain giant lured Brian Niccol away from Chipotle (CMG) as the company’s new CEO.

CFRA boosted its rating on Starbucks (SBUX) to Buy from Hold following the CEO blockbuster development. The firm’s view is that many of CMG’s strategies during Niccol’s tenure are now sorely needed at Starbucks (SBUX). Those examples include Chipotle (CMG) franchising internationally, along with its focus on Gen-Z workers. Analyst Siye Desta highlighted that Gen-Z workers are less likely to unionize due to age and life plans. “CMG also boosted the hiring demand of Gen-Z through its targeted benefits aimed at credit building and college tuition,” noted Desta. CFRA lifted its 12-month price target on CFRA to $109, which works out to 26.3X the FY25 EPS.

Deutsche Bank also lifted Starbucks (SBUX) to a Buy rating from Hold. Analyst Lauren Silberman said bringing in Niccol was a home run hire. “We believe Mr. Niccol’s strengths in operations, marketing and innovation, all enhanced with technology, and experiences at both Chipotle and Taco Bell,” she observed.

Stifel also joined the bull camp, with an upgrade on SBUX to Buy from Hold. Analyst Chris O’Cull said SBUX’s prioritization and execution should be much better under Niccol. “We expect the shares to remain supported by positive sentiment over the next few quarters, even if near-term results fall short of the Street mean,” he wrote.

Meanwhile, UBS kept a bull rating on Starbucks (SBUX). “We believe Niccol’s appointment to the Chairman and CEO roles improves Starbucks’ potential brand positioning and growth prospects, increasing confidence in the company’s multiyear outlook,” stated UBS analyst Dennis Geiger. The expectation is that beyond strong sales, margin expansion and earnings growth, Niccol’s impact on employee focus, across expansion of benefits and strengthening of culture in the restaurants could be particularly relevant for SBUX.

Morgan Stanley analyst Brian Harbour warned that there are examples of executives not being able to replicate their prior. However, Niccol is viewed as a top line and operationally focused brand builder, not one to cut his way to better results, which is seen as the right focus for Starbucks (SBUX) due to its traffic problem. “The other key factor is that Niccol is well known and liked by longer duration investors, who are likely more willing to engage with the story now, and can tolerate some earnings volatility on the road to more durable execution in the future,” added Harbour.

Seeking Alpha analysts who have weighed in on the Starbucks (SBUX) CEO development include Uttma Dey and Sungarden Investment Publishing.

Shares of Starbucks (SBUX) pulled back on Wednesday with a 4.1% drop, but are still up more than 22% for the week. Sweetgreen (SG), Noodles (NDLS), and CAVA Group (CAVA) are also up by more than 10% over the last week as investors have warmed back up to growth stories.