On Friday, The Wall Street Journal reported that activist investor Elliott Management had taken a large stake in Starbucks (NYSE:SBUX). The exact size of the position is unknown, although Elliott has already engaged in talks with the company about how to push up the price of SBUX stock. Elliott’s specific goals are still unclear, such as whether it is seeking a board seat.
SBUX stock is down by nearly 20% year-to-date (YTD), severely underperforming the S&P 500.
The coffee chain is experiencing several issues. During the quarter ended March 31, global comparable stores sales fell by 4% year-over-year (YOY) while operating margins fell by 2.4% to 12.8%. On top of that, EPS declined by 14% to 68 cents.
This was a result of fewer customer visits and increases in wages and promotional activity. China’s economic slowdown has also affected the coffee chain with the country’s comparable store sales falling by 11%.
Underneath the hood, there’s also issues with management, as former CEO Howard Schultz previously highlighted inefficiencies with the current team.
SBUX Stock: Elliott Takes an Activist Stake in Starbucks
Elliott has a long history of successful activist investments. Its involvement with Starbucks is a positive for the company and a sign that an esteemed investor believes that a turnaround is possible.
According to Citi analyst Jon Tower, Elliott’s involvement could create a near-term price floor for SBUX stock. At the same time, Tower believes that the a quick fix for the company isn’t likely and that sales and profit could take a hit if Starbucks begins testing out changes to its business model.
Meanwhile, TD Cowen analyst Andrew Charles reiterated his $81 price target and “hold” rating following the news. He believes that Elliott could influence Starbucks to lower its general and administrative spending while returning cash to shareholders. That could be in the form of a buyback or dividend hike.
“We continue to believe SBUX’s largest challenge is lofty long-term guidance, and that an easier to execute outlook would make shares more attractive,” said Charles.
Overall, Wall Street views Elliott’s involvement as a positive. Analysts across the board have an average SBUX stock price target of $88.08 per share.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
