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What Starbucks needs to do next after choosing a new CEO: analyst

Starbucks appointed Laxman Narasimhan as its next CEO on Thursday and Wall Street is weighing what role he will play in shaping the coffee giant's critical turnaround strategy.

A former top executive at PepsiCo who stepped down from his role as CEO of Lysol maker Reckitt Benckiser earlier this week, Narasimhan will join Starbucks on Oct. 1 but officially begin his role and join the Starbucks board of directors on April 1, 2023.

Incoming Starbucks CEO Laxman Narasimhan. (Headshot)
Incoming Starbucks CEO Laxman Narasimhan. (Headshot)

Current Starbucks CEO Howard Schultz will stay on in that capacity until then to show Narasimhan the ins and outs before going back to his board role while also serving as an advisor.

But first, Schultz and his hulking presence at Starbucks will take center stage at a September 13 investor day. The company promises to share a turnaround strategy as it battles through weak sales and a growing unionization campaign. Long-term guidance is also expected to be shared.

Here's a note on Friday from Citi restaurant analyst Jon Tower that caught Yahoo Finance's attention:

  • Price Target: $90

  • Rating: Neutral (equivalent of a hold rating)

  • Stock price movement assumed: +5.3%

Tower's take on new CEO:

"We’d argue Starbucks' new CEO will be an unknown entity to many U.S.-restaurant investors, but one who appears to have an extensive history advising and running global consumer brands, which could work to the company’s favor as the brand slowly grows its sales/profit base outside the U.S. Further, the announcement removes any additional speculation regarding the CEO transition (timing and who) and allows investors to focus squarely on the company’s reinvention plans during the upcoming investor event (September 13, 2022). However, with the new CEO joining post the company’s investor day (when we expect plans for the longer-term playbook), it begs the question as to what incremental influence this leader may have on these plans once fully aboard come April 2023. We think this will need to be fleshed out at the investor event in order to gain greater long-term investor interest in the stock."

Why Tower is neutral rated on Starbucks shares:

"Our $90 price target is based upon a 17x near-term multiple 12-months from now EV/EBITDA multiple, represents a discount to the company’s long-term average relative multiple (1.2x vs. 5-year average of 1.25x), and a ~3.8% free cash flow yield. We believe this multiple is justified as it balances near-term operating challenges to the business (e.g., China choppiness, U.S. labor reinvestments beyond what is already reflected in our model) and leadership shifts against the brand’s long-term global growth opportunity."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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