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Brian Niccol will likely opt for a massive increase in capital expenditures to position Starbucks Corp (NASDAQ: SBUX) well for the long term, says Jon Tower – a Citi analyst.
A better part of these investments is expected to be focused on technology, especially around siren station remodelling that could help improve throughput as well as the employee experience, he told CNBC in an interview on Wednesday.
Tower, however, agreed that such a strategic shift may weigh on the beverage giant’s financials in the near term.
He expects it to take from 12 to 24 months before Niccol’s efforts come to fruition at SBUX.
Nonetheless, investors are convinced that Brian Niccol is the executive Starbucks needed to turn around and fix its long-standing issues like higher prices and lower traffic. That’s because he has an exceptional track record as the CEO of Chipotle.
Starbucks stock rallied nearly 25% after naming Brian Niccol as top boss on Tuesday – the best performance since its IPO in 1992.
Brian Niccol will optimise the menu at Starbucks
Jon Tower also expects Brian Niccol to add a few new items to optimise the menu at Starbucks.
While that may mean a downside risk to a margin over the next couple of quarters, menu optimization may drive more customers to the stores and ultimately translate into better profits, he said on “Squawk Box” today.
SBUX will likely be more creative in terms of promotions and announce new app deals under Niccol as the chief executive, as per the Citi analyst.
All of it is similar to what he did at Chipotle that ultimately resulted in a close to 800% gain in shares of the fast casual restaurants chain during his tenure from March 2018 to August 2024.
Chipotle stock is in the red at the time of writing, which spells opportunity considering Brian Niccol built a “phenomenal business” and an “awesome bench” for the company based out of Newport Beach, CA, Tower added.
SBUX will partner with local operators in China under Niccol
Lastly, Citi’s Tower expects Brian Niccol to partner and form a joint venture with a local operator in China.
You get boots on the ground local operators who really understand the way the local market works and the politics behind it, you’ll probably see a more profitable enterprise.
Analysts at Stifel also upgraded Starbucks shares to “buy” on Wednesday and raised their price target to $110, indicating optimism for what the future may hold for SBUX under Brian Niccol. The new price target translates to about a 20% upside from here.
The coffee chain currently pays a dividend yield of 2.47% that makes up for another reason to have it in your portfolio.
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