Wall Street says buy the Starbucks dip on Schultz's exit

Published Fri, Dec 2 20169:42 AM EST

Wall Street analysts on Friday advised clients to hold on to their Starbucks shares even as the stock dropped on news that founder and CEO Howard Schultz would step down and yield the role to Kevin Johnson, the current president and chief operating officer. Below are the key views from some of Wall Street's biggest investment firms: Credit Suisse "While we had expected Schultz to step back from the CEO role at some pt. in the coming years, the timing was somewhat surprising given his age and the upcoming investor day (Dec 7). However, the co. suggested this change has been discussed internally for 'months'. Recall that SBUX announced a new leadership structure in July '16, with Schultz announcing plans to focus on strategy and innovation, incl. the Roastery and Reserve initiatives. SBUX has a deep bench of experienced executives, and Schultz indicated that he plans to maintain an active role in the business (no mention of the word 'retirement'). However, day-to-day ops and decision-making will fall to the new executive team." Barclays "We believe this evolution is just another demonstration of the forward thinking ability of management in addressing the changing needs of the consumer, not unlike the acknowledgement three years ago of the 'seismic shift' within retail away from brick & mortar and towards on-line & mobile. With that said, over the next 5+ years, the core Starbucks platform is still the investment case, and the most recent fundamental easing has investors prudently cautious. The question remains whether the most recent five-year plan, with seven core strategies for growth, will provide the necessary product & technology innovation to sustain the 'flywheel' momentum. We look forward to greater detail at their '16 Investor Day next Wednesday, 12/7." Citi "While the announcement was somewhat unexpected and there's been some concern among investors regarding SBUX's US comp trends, we think the timing makes sense given the company's previously scheduled Investor Day on 12/7. With this announcement out of the way it should set the stage for a more thoughtful review of mid-term goals and strategies at the event." Oppenheimer "Howard is one of the best CEOs we've ever covered, so to see him step away from day-to-day operations is a bit disappointing. However, he will remain deeply involved and will shift focus to building the company's higher-end 'Reserve' brand and world-class roasteries. We believe SBUX remains well-positioned. Maintain Outperform." Wells Fargo "We believe Johnson's technology background positions him well to ensure SBUX's mobile and digital initiatives--key to SBUX's long-term success, in our view--will remain a primary focus of the company. Importantly, Schultz will remain focused on his ongoing efforts to premiumize the SBUX brand and experience through Roastery and Reserve stores, which should support accelerated innovation and allow the broader store network led by Johnson to continue to thrive." Cowen "We would be buyers on the pullback following news of the CEO transition from Mr. Schultz to Mr. Johnson, which we view as an evolution of Mr. Johnson's role of increasing responsibility delegated from Mr. Schultz. Mr. Schultz will remain involved with key areas of Starbucks' strategy, and we believe the announcement is unlikely to be made during a period of Americas comps underperformance." Piper Jaffray "We believe Mr. Johnson's familiarity with the brand's overarching strategy from a board perspective (since 2009) and as an executive (COO since 2015) make him well-positioned to lead the company. Further, the expectation is that Mr. Johnson's substantial experience in the technology industry will help to continue to drive growth and scale in the core business which has benefited from early investments in/ around technology. We also make note that the company indicated no other executive transitions are in the works." Goldman Sachs "(1) Greater focus on next week's analyst day difficult to avoid: This is the effective leadership structure already in place, and there was strong internal preparation for the change. (2) Call reassuring that no pivot from in-store innovation is underway: Mr. Johnson has a technology background, and, per the press release, Mr. Schultz plans to focus on the premium reserve brand. That said, the call clearly indicated that the product innovation/consumer technology pipelines (e.g. comp drivers) have never been "so robust". (3) Interesting points about global operations opportunities: The call indicated one goal of the leadership change is to help enhance SBUX's capabilities around global best-practice sharing. Given our view of SBUX as an already strong global operator, we think further opportunities would be a positive." Stephens "We believe Schultz has generated the most impressive track record of any CEO in the industry, and we anticipate investors having some early concerns with this change. However, we do not anticipate a major shift in the business and remain EW [Equal Weight] simply on valuation. Our PT is $58." William Blair "At an aftermarket valuation of 25 times our calendar 2017 estimate, we would be buyers on any weakness given Starbucks' resilient sales trends, strong expansion prospects, and high visibility on 15% to 20% annual EPS growth, the latter of which we expect to be illustrated in depth at the company's biennial analyst day next week." Guggenheim "Our greatest concern is that SBUX is losing an irreplaceable merchant. We anticipate the 12/7/2016 investor day to be a net positive consisting of impressive early results from the company's investments in elevating the brand domestically and channel growth globally. ....Kevin Johnson, previously COO of SBUX, joined the Starbucks management team in 2015 and serves on the company's board of directors, a position he has held since 2009. His career prior to SBUX includes 33 years in the technology industry which included 16 years at Microsoft (MSFT, NC, $59.20) and a five-year tour as CEO of Juniper Networks (JNPR, NC, $26.98). Juniper shares appreciated 24% from November 2008 to January 2014 under Kevin Johnson as CEO, the S & P 500 increased 91% during that time frame." BTIG "Given the success that Starbucks has achieved during Mr. Schultz's tenure, including seven consecutive years of mid-to-high single digit comp growth in the Americas, we believe some investors will be concerned with the announcement. We tend to dismiss comparisons to Mr. Schultz's previous retirement as CEO (in 2000, returning in 2008) as we believe the brand, retail offering and customer engagement are all much more established today. This provides us with some confidence that the near and long-term prospects won't change. Though the stock could be under pressure as investors react, we believe the compelling fundamentals and multitude of sales drivers provide more than enough to remain positive. We maintain our Buy rating." Bank of Montreal "1) Howard Schultz is not leaving the company entirely and will remain in the CEO role until April (at which point year-ago same store sales comparisons ease meaningfully), and 2) the eventual transition of leadership should not be entirely unexpected....We are optimistic that the leadership change will not alter SBUX's long-term outlook/performance."

A Starbucks location at the John Wayne Airport in Santa Ana, California.

Scott Mlyn | CNBC

Below are the key views from some of Wall Street's biggest investment firms: