Schultz and Starbucks Corporation (SBUX) Stock Are NOT Done Yet

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SBUX stock - Schultz and Starbucks Corporation (SBUX) Stock Are NOT Done Yet

Source: Starbucks Corporation

Starbucks Corporation (NASDAQ:SBUX) will move forward in life without Howard Schultz — an unquestionable visionary for the coffee titan — as CEO. He will become executive chairman, COO Kevin Johnson will become chief executive … and SBUX stock will be better off as a result.

Yes, Starbucks stock is off 3% in Friday’s early morning trade. But I don’t think investors understand what is going on, and why this is a good move.

Schultz Hasn’t Given Up on Starbucks

Howard Schultz said back in July that he would be stepping away from the day-to-day operations, and that he would instead be focusing on higher-end Reserve Roasteries and the long-term vision for SBUX.

Here’s the thing about Starbucks: It’s a world-class brand name. It has a firm concept. Consumers know what to expect. Heck, SBUX stock holders know what to expect. There are innovations happening at this retail level, but they are incremental advancements in what was once a visionary exercise.

It’s a bit like automobiles. There are constant enhancements in terms of standard features and options, and some cool stuff does happen. But ultimately, a car is a car. Holistically, very little has changed over the past few decades.

I think Schultz wants to create the next long-term vision for Starbucks, kind of like creating and perfecting the driverless car, or even a flying car. He wants to innovate on a macro scale. Who can blame him? He’s like Dr. Robert Ford in Westworld. He didn’t just want to make quaint cowboy robots that could dance, drink, and shoot — he wanted them to be complex entities that were almost human.

Implicit in this move, however, is a possible acknowledgement that retail store growth may be peaking. After all, there are tens of thousands of storefronts at this point. New drinks, new food, new products may keep growth moving, but SBUX has to think much more long-term.

It’s telling that Schultz moved the COO into the CEO position. This tells us two things:

Tech Matters

Johnson is a tech guy, having come from both Microsoft Corporation (NASDAQ:MSFT) and Juniper Networks (NYSE:JNPR). This suggests SBUX will increasingly incorporate some form of technology into its business.

How that translates to pushing coffee lines along faster is unclear, but I think it means that the retail experience is going to become something more enhanced than what it is now.

Some SBUX stock analysts are wagging their fingers, saying that Johnson’s tech experience is going to mean the stores will suffer by not having a retail guy at the helm. But these people forget that Johnson is the chief operating officer. He knows about operations! Presumably, that’s why he was hired, and why he has remained. The stores are operating just fine, other than less-than-speedy delivery at peak times, but that again may be where his tech experience comes into play.

It’s Time for Starbucks 3.0

I think Schultz sees that SBUX faces a new era.

Starbucks 1.0 was about establishing the brand and concept. He wanted 2000 stores by the year 2000 and got there. Then the company kind of lost its way when he stepped aside as CEO.

When he came back, Starbucks 2.0 drove SBUX stock from $10 to $60, as he developed and expanded the vision into what it is now.

I think he sees that it is time soon for Starbucks 3.0. Nobody knows quite what he’s got in mind, but obviously he has some ideas for innovation at the macro level, while leaving Johnson to handle the micro level and rejigger it.

Bottom Line for Starbucks Stock

Of course, I could be wrong.  Maybe this is all a smokescreen. Maybe the Reserve concept is a trifle, and Schultz is just sticking around for a little while longer to make sure Johnson settles in, and then he’ll bail.

But I doubt it.

If SBUX stock falls to the lower $50s, I’m a buyer. I certainly would be in the $40s. In fact, you might even want to open a half position, because the market might send it lower still.

But over the long-term, Starbucks shares will recover and get past where they were under Schultz’s tenure. Of that, I am sure.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/starbucks-corporation-sbux-stock-howard-schultz-ceo/.

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